What agreements are contracts (Sec 10)

All agreements are contracts if they are made by the 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.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing  or in the presence of witnesses, or any law relating to the registration of documents.

Who are competent to contract (Sec 11)

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.

What is a sound mind for the purposes of contracting (Sec 12)

A person is said to be of sound mind for the purposes of making a contract, if , at the time when he makes it, he is capable of understanding it and of forming a rational judgment as to its effect upon his interests.

A person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind.

A person who is usually of sound mind, but occasionally of unsound mind, may not make a contract when he is of unsound mind.

Illustrations

(a) A patient in a lunatic asylum (a psychiatric hospital.) who is at intervals of sound mind, may contract during those intervals.

(b) A sane (mentally healthy) man, who is delirious(sick) from fever, or who is so drunk that he cannot understand the terms of a contract, or form a rational judgment as to its effect on his interests, cannot contract whilst such delirium of drunkenness lasts.

Position of Agreements by a Minor

(Related section 11)

Agreements with minor are void-ab-initio.

(why ?) Minor…inexperienced, no capacity to understand consequences if any or profit or loss. Minor incapable to earn or to take liability.

Purpose : To protect minor.

1. Validity : Void-ab-initio

2. No ratification

3. Contracts for the benefits of minor (can enforce)

4. Minor can always plead minority.

5. Validity of minor’s agreement jointly with a major person

6. Minor as a partner

7. Can minor become an agent ?

8. Shareholder/member of a company.

9. Minor cannot be declared as insolvent.

10. Minors guardians

11. Contract for supplies of necessaries.

12 No estoppel against minor.

13. Minor’s liability in civil wrong

Mohori Bibee v/s Dharmodas Ghose : It can be concluded from this case that any agreement or deed in which minor is party to it or is included in such agreement shall be declared null and void (absolutely void) because such an agreement is not an agreement in the eyes of law.

In cases minors parents or custodians shall not be liable for the dealing done by the minor without their consent, and hence they will be not liable to return the amount back taken by the minor.

“Consent” (संमती)defined (Sec 13)

Two or more persons are said to consent when they agree upon the same thing in the same sense. (एकाच अर्थाने एकाच गोष्टीसाठी सहमत)

“Consensus ad idem” in contract law means there has been a meeting of the minds of all parties involved and everyone involved has accepted the offered contractual obligations of each party. Meeting of minds is very essential to avoid any kind of misunderstanding and confusion in the later

This phrase of Consensus ad idem originated from the fact that contracts are rendered void if the parties are not on the same understanding when it comes to terms and conditions that constitute a contract. Hence, in order to avoid conditions like mistake and misrepresentation that consequently makes a contract null and void, shall be removed at the time of formulating/ drafting a written contract.

Example: ‘A’ who owns two horses named Rajhans and Hansraj. ‘A’ selling horse Rajhans to ‘B’. ‘B’ thinks that he is purchasing horse Hansraj. There is no consensus-ad-idem, there can be no contract.

This means that the parties to the agreement must have agreed about the subject-matter of the agreement in the same sense and at the same time. Unless there is consensus-ad-idem, there can be no contract.

“Free consent” (मुक्त संमती ) defined (Sec 14)

Consent is said to be free when it is not caused by-

(1) coercion, (जबरदस्तीने) as defined in section 15, or

(2) undue influence, (गैरवाजवी प्रभावाने) as defined in section 16, or

(3) fraud, (लबाडीने) as defined in section 17, or

(4) misrepresentation, (दिशाभूल करून ) as defined in section 18, or

(5) mistake, (चुकीने) subject to the provisions of sections 20, 21, and 22.

Consent is said to be so caused when it would not have been given but for the existence of such coercion, undue influence, fraud, misrepresentation, or mistake.

Importance of free consent :

• The contract made out of free consent protects the validity and enforceability of an agreement.
• It provides a protecting shield to the parties from coercion, undue influence, misrepresentation, fraud, and mistake
• The principle of consensus-ad-idem is followed.

Difference between consent and free consent :

“Coercion” defined (Sec 15)

“Coercion” is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860) or the 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 (45 of 1860) is or is not in force in the place where the coercion is employed.

Illustration

A, on board an English ship on the high seas, causes B to enter into an agreement by an act amounting to criminal intimidation under the Indian Penal Code (45 of 1860).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 506 of the Indian Penal Code (45 of 1860) was not in force at the time when or at the place where the act was done.

Acts forbidden by Indian Penal Code implies a committing or threatening to commit some act which is contrary to law.

A challenging question in this connection was before the Madras High Court in “Chikham Amiraju v. Chikham Seshamma” :-

In this case, by threat of suicide, a Hindu induced his wife and son to execute a release in favour of his brother in respect of certain properties which they claimed as their own….. It was held that, the threat of suicide amounted to coercion within section 15 and the release deed was, therefore, voidable.

Detention of property : Illustration of detention of property :

Astley v. Reynolds : The plaintiff had pledged his plate with the defendant for £20. When he went to redeem it the pledgee insisted that an additional £10 interest was also owed. The plaintiff paid this to redeem his plate and then sued to recover it back. The court allowed it.

Effect of Coercion : An agreement entered into under coercion is voidable at the option of the party.

“Undue influence” defined (Sec 16)

(1) A contract is said to be induced by “undue influence” where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other.

(2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another-

(a) where he holds a real or apparent (seeming/evident) authority over the other, or where he stands in a fiduciary (holding of something in trust for another) 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) 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 (गैरवाजवी), 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.

Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).

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 then the sum due in respect of the advance. A employs undue influence.

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

(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable, It lies on B to prove that the contract was not induced by undue influence.

(d) A applies to a banker for a loan at a time when there is stringency in the money 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.

Ability to Dominate will of other : for example, in a case before Allahabad HC, A spiritual adviser (guru) induced the plaintiff, his devotee, to gift him the whole of his property to secure benefits to his soul in the next world. Such a consent is said to be obtained by undue influence.

(Mannu Singh v. Umadat Pandey).

Real or Apparent Authority : A peron in authority is definitely able to dominate the will of the person over whom the authority is held. Example, income tax officer in relation to an assesse; a magistrate or police officer in relation to an accused person and the like. The expression “apparent authority” would include cases in which a person has no real authority, but is able to approach the other with a show or colour of authority.

Fiduciary relation : Every relationship of trust and confidence is a fiduciary relation. This category is, therefore, a very wide one. Some of the Examples : Doctor/patient, Advocate/client, Parent/child.

Mental Distress : A person is said to be in distress when his mental capacity is temporarily or permanently affected. It may be due to extreme old age or mental or bodily illness or any other cause.

Unconscionable bargains : When the contract is apparently

unconscionable, that is, unfair, the law presumes that the consent must have been obtained by undue influence.

Burden od proof : In an action to avoid a contract on the ground of undue influence the plaintiff has to prove two main points. He must show, in the first place, tht the other party was in a position to dominate his will, and secondly, that he actually used his influence to obtain the plaintiff’s consent to the contract….

….But in cases of unfair contracts, the burden is shifted to the stronger party to prove that he did not used undue influence.

Fraud : False misrepresentation of facts made wilfully (intentionally) with a purpose to deceive to other party.

Commission of act…by whom ?….by party to the contract

……….or….with the help of other (with his connivance)

……….or……….agent of party

Intention to deceive or induce to enter in to a contract…..to whom ?

to another party to the contract or his agent.

“Fraud defined (Sec 17)

“Fraud” means and includes any of the following acts committed by a party to a contract, or with his connivance (willingness to allow or be secretly involved in an immoral or illegal act.) or by his agents with intent to deceive another party thereto or his agent, or to induce (cause to arise) him to enter into the contract:

(1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true;

(2) the active concealment of a fact by one having knowledge or belief 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 silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless(except when) 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 (except when) 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 horse’s 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) B says to A- “If you do not deny it, I shall assume that the horse is sound”. A says nothing. Here, A’s silence is equivalent to speech.

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

Suggestion : “Suggetio Falsi” ….A statement of a falsehood. This amounts to fraud whenever the party making it was bound to disclose the truth.

eg : Shop keeper sales good…says imported…in fact they are not.

—-Shop keeper commits a fraud.

Active Concealment : In active concealment, a party takes positive steps to prevent the information from reaching the other party and this is a fraud.

Concealment by mere silence is no fraud : Ordinarily, of course, mere silence is no fraud, even if its result is to conceal “facts likely to affect the willingness of a person to enter into a contract.”

When silence is fraud :

1. Duty to speak

2. Where silence is deceptive (when silence is equivalent to speech)

3. Change of Circumstances.(duty to inform change of ciecumstances)

4. Half truths.

The major difference between fraud and misrepresentation are as under:

1. Fraud is a deliberate misstatement of a material fact. Misrepresentation is a bonafide representation of misstatement believing it to be true which turns out to be untrue.
2. Fraud is done to deceive the other party, but Misrepresentation is not done to deceive the other party.
3. Fraud is defined in Section 17 and misrepresentation is defined in Section 18 of the Indian Contract Act, 1872.
4. In fraud, the party making representation knows the truth however in misrepresentation, the party making representation does not know the truth.

“Misrepresentation” defined (Sec 18)

“Misrepresentation” means and includes-

(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true;

(2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him; by misleading another to his prejudice, or to the prejudice of any one claiming under him;

(3) causing, however innocently, a party to an agreement, to make a mistake as to the substance of the thing which is the subject of the agreement.

Unwarranted Statements : 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 misreprsentation

illustration : A sells his car to B by saying that the car is made in Germany but infact it is made in Delhi. But A is not aware of this fact but he believes it that it is made in Germany. …here no intention to cheat so it is misrepresentation

Breach of duty : illustration : A sells his business to B for Rs. 1L in January when the sell was of Rs. 10,000/- Agreement made in July when the sale dropped to Rs. 2000/-. It was duty of A to inform but he forgets but not intentionally.

Inducing Mistake about subject-matter : If one of the parties leads the other, however innocently, to make a mistake as to the nature or quality of the subject-matter, there is a misrepresentation.

Illustration :

1^st house 2^nd house

A sells house to B. A tells I want to sell 1^st house to you B agrees.

House is subject matter. Which is the first house is confusion.

A made B to make mistake as to the subject-matter.

Voidability of agreements without free consent (Sec 19)

When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put on the position in which he would have been if the representations made had been true.

Exception : If such consent was caused by misrepresentation or by silence, fraudulent within the meaning of section 17, the contract, nevertheless, (even so/yet) is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Explanation: A fraud or misrepresentation which did not cause the consent to a contract of the party on whom such fraud was practiced, or to whom such misrepresentation was made, does not render a contract voidable.

Illustrations

(a) A, intending to deceive B, falsely represents that five hundred maunds of indigo are made annually at A’s factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.

(b) A, by a misrepresentation, leads B erroneously to believe that five hundred mounds of indigo are made annually at A’s factory. B examines the accounts of the factory, which show that only four hundred maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A’s misrepresentation.

(c) A fraudulently informs B that A’s estate is free from encumbrance. B thereupon buys the estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on its being carried out and the mortgage-debt redeemed.

(d) B, having discovered a vein of ore on the estate of A, adopts means to conceal, and does conceal the existence of the ore from A. Though A’s ignorance B is enabled to buy the estate at an undervalue. The contract is voidable at the option of A.

(e) A is entitled to succeed to an estate at the death of B, B dies; C having received intelligence of B’s death, prevents the intelligence reaching A, and thus induces A to sell him his interest in the estate. The sale is voidable at the option of A.

Power to set aside contract induced by undue influence (Sec 19A)

When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option of the party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just.

Illustrations

(a) A’s son has forged B’s name to a promissory note. B under threat of persecuting A’s son, obtains a bond from A for the amount of the forged note. If B sues on this bond, the Court may set the bond aside.

(b) A, a money lender, advances Rs. 100 to B, an agriculturist, and, by undue influence induces B to execute a bond for Rs. 200 with interest at 6 per cent per month. The court may set the bond aside, ordering B to repay the Rs. 100 with such interest as may seem just.

Mistake

Mistake of Facts Mistake of Law

(Sec 20, 22) (Sec 21)

Agreement void where both parties are under mistake as to matter of fact (Sec 20)

Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement, the agreement is void.

Explanation: An erroneous opinion as to the value of the things which forms the subject-matter of the agreement, is not 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 in 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 of bargain, though neither party was aware of the fact. The agreement is void.

(c) A, being entitled to an estate of the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.

( Example of explanation : ‘A’ agreed to purchase house from ‘B’ for 1 Cr. He discovered that his opinion as to the value was erroneous… Agreement not void. )

Effect of mistakes as to law (Sec 21)

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 contract grounded on the erroneous belief that a particular debt is barred by the Indian Law of Limitation; the contract is not voidable.

( Examples : Betting, Wager, Traffic rules )

Contract caused by mistake of one party as to matter of fact (Sec 22)

A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

Mistake may be unilateral or bilateral

Example of Unilateral Mistake : ( ‘A’ takes samples of rice from ‘B’. After looking sample, as per his opinion it’s a old rice…places order on delivery finds that it’s new rice…. Agreement valid as it’s a mistake of ‘A’.

Examples of Bilateral mistakes : 1. Existence 2. Identity 3. Quality 4. Quantity.

Legality of Object

What consideration and objects are lawful, and what not (Sec 23)

( Difference between consideration and object : Consideration is the act, abstinence or the promise made at the desire of the promisor whereas Object is the purpose for which agreement is entered into. eg Sale of arms…for… purpose of waging war.)

The consideration or object of an agreement is lawful, unless (except when) –

• It is forbidden by law;or
• Is of such nature that, if permitted it would defeat the provision of any law or is fraudulent; or
• Involves or implies, injury to the person or property of another; or
• The Court regards it as immoral, or opposed to public policy.

In each of these cases, the consideration or object of an agreement is said to be unlawful. Every agreement of which the object or consideration is unlawful is void.

Illustrations

(a) A agrees to sell his house to B for 10,000 rupees. Here, B’s promise to pay the sum of 10,000 rupees is the consideration for A’s promise to sell the house and A’s promises to sell the house is the consideration for B’s promise to pay the 10,000 rupees. These are lawful considerations.

(b) A promises to pay 10,000 rupees at the end of six months, if C, who owes that sum to B, fails to pay it, B promises to grant time to C accordingly. Here, the promises of each party is the consideration for the promises of the other party, and they are lawful considerations.

(c) A promises, for a certain sum paid to him by B, to make goods to B the value of his ship of it is wrecked on a certain voyage. Here, A’s promises is the consideration for B’s payment and B’s payment is the consideration for A’s promise, and these are lawful considerations.

(d) A promises to maintain B’s child, and B promises to pay A 1,000 rupees yearly for the purpose. Here, the promise of each party is the consideration for the promise of the other party. They are lawful considerations.

(e) A, B and C enter into an agreement for the division among them of gains acquired or to be acquired, by them by fraud. The agreement is void, as its object is unlawful.

(f) A promises to obtain for B an employment in the public service and B promises to pay 1,000 rupees to A. The agreement is void, as the consideration for it is unlawful.

(g) A, being agent for a landed proprietor, agrees for money, without the knowledge of his principal, to obtain for B a lease of land belonging to his principal. The agreement between A and B is void, as it implies a fraud by concealment, by A, on his principal.

(h) A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.

(i) A’s estate is sold for arrears of revenue under the provisions of an Act of the Legislature, by which the defaulter is prohibited from purchasing the estate. B, upon an understanding with A, becomes the purchaser, and agrees to convey the estate to A upon receiving from him the price which B has paid. The agreement is void, as it renders the transaction, in effect, a purchase by the defaulter, and would so defeat the object of the law.

(j) A, who is B’s mukhtar, promises to exercise his influence, as such, with B in favour of C, and C promises to pay 1,000 rupees to A. The agreement is void, because it is immoral.

(k) A agrees to let her daughter to hire to B for concubinage (Cohabitation without being legally married) The agreement is void, because it is immoral, though the letting may not be punishable under the Indian Penal Code (45 of 1860).

Agreements void, if considerations and objects unlawful in part (Sec 24)

If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.

Illustrations

A promises to superintend, on behalf of B, a legal manufacture of indigo, and an illegal traffic in another articles B promises to pay to A salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful.

Agreements against Public Policy.

1. Trading with enemy.

2. Stifling (suppression) Prosecution. ( The Principle : Felony(serious crime) can not be made a source of gain.)

3. Contracts in the nature of ‘Champerty’ & ‘Maintenance’

4. Sale/Transfer of public offices or titles.

5. Restraint of Parental Rights.

6. Restraint of Personal liberty.

7. Agreements which creates monopoly.

8. Agreements interfering with justice.

9. Marriage brokerage agreements.

10. Interest against obligation.

11. Unfair or Unreasonable dealings.

12. Restraint of marriage. (S. 26)

13. Restraint of trade (S. 27)

14. Restraint of legal proceedings.

Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law (Sec 25)

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 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.

In any of these cases, such an agreement is a contract.

Explanation 1 : Nothing in this section 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 inadequate; 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 promises, for no consideration, to give to B Rs. 1,000. This. is a void agreement.

(b) A, for natural love and affection, promise to give his son B, Rs. 1,000 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. 1,000, but the debt is barred by the Limitation Act. A signs 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. 1,000 for Rs. 10. A’ s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell horse of worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely given….The inadequacy of the consideration is a fact which the court should take into account into considering whether or not A’ s consent was freely given.

Agreement in restraint of marriage, void (Sec 26)

Every agreement in restraint of the marriage of any person, other than a minor, is void.

Restraint may be general or partial, that is to say the party may be restrained from marrying at all, or marrying for a fixed period, marrying a particular person, or class of persons—— the agreement is void.

Rao Rani v. Gulab Rani : A penalty upon remarriage may not be construed as a restraint of marriage.

Agreement in restraint of trade, void (Sec 27)

Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1 : Saving of agreement not to carry on business of which goodwill is sold-One who sells the goodwill 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 goodwill 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.

(Article 19(1)(g) of the Indian Constitution :  All citizens shall have the right to practise any profession, or to carry on any occupation, trade or business.

………………Only government can impose ‘reasonable restrictions’ on this right on the ground of public interest, public welfare, health, safety and life in general.

∴ no private individual can impose any restrictions on any other person

…the part which imposes such restrictions becomes void (not full agmnt))

*** If there is a sale of goodwill—agmnt not in restraint of trade provided, following conditions

i) only from carrying on a similar business.

ii) restraint can apply only so long as the buyer is carrying on a similar business.

iii) It can operate only within specified local limits.

iv) Such restrictions must appear to the court to be reasonable.

Madhub Chander v. Raj Coomar : First case in which scope of the section came up for determination before Calcutta HC

Agreements in restraint of legal proceedings, void (Sec 28)

Every agreement,-

(a) 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; or

(b) which extinguishes the rights of any party thereto (to that), or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent.

Section 28 can be divided in three parts :

i) Agreements absolutely restricting the enforcing of rights in the ordinary tribunals.

Eg.: Two persons—–agreement——no action to be brought on contract.

(but will not restrict if it is to be brought in a particular court).

 ii) Agreements limiting the time allowed by the limitation Act.

Eg.: Action for breach of contract may be brought within 3 years from the date of breach…….but, if clause in agreement says action not to be brought after two years is void.

iii) Agreements extinguishing the rights of a party on the expiry of a specified period.

Eg. : M.G.Bros Lorry Service v. Prasad Textiles

Section 10 of the Carriers Act, 1865  says notice of loss or damage must be given within six months otherwise the right to sue is lost…..but,

the agreement says that, notice must be given within 30 days of the arrival of goods. ……………………… This being contrary to statutory provisions, was held to be void.

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 the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred . 

Exception,2: Saving of contract to refer questions 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 references to arbitration.

Exception 3. Saving of a guarantee agreement of a bank or a financial institution :- This section shall not render illegal a contract in writing by which any bank or financial institution stipulate a term in a guarantee or any agreement making a provision for guarantee for extinguishment of the rights or discharge of any party thereto from any liability under or in respect of such guarantee or agreement on the expiry of a specified period which is not less than one year from the date of occurring or non-occurring of a specified event for extinguishment or discharge of such party from the said liability.

Agreements void for uncertainty (Sec 29)

Agreements, the meaning of which is not certain, or capable of being made certain, are void.

Illustrations

(a) A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

(b) A agrees to sell B 100 tons of oil of a specified description, known as an article of commerce. There is no uncertainty there not make the agreement void.

(c) A who is a dealer in coconut-oil only, agrees to sell to B “100 tons of oil”. The nature of A’s trade affords an indication of the meaning of the words, and A has entered into contract for the sale of one hundred tons of coconut-oil.

(d) A agrees to sell to B “all the grain in my granary at Ramnagar”. There is no uncertainty here make the agreement void.

(e) A agrees to sell to B “1000 maunds of rice at a price to be fixed by C”. As the price capable of being made certain, there is no uncertainty here to make the agreement void.

(f) A agrees to sell to B “my white horse for rupees five hundred or rupees one thousand”. There is nothing to show which of the two prices was to be given. The agreement is void.

Agreements by way of wager (सट्टा), void.(Sec 30)

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 a person to abide the result of any game or other uncertain event on which any wager 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 entered into for or toward any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be rewarded to the winner or winners of any horse-race.

Section 294A of the Indian Penal Code not affected: Nothing in this section shall be deemed to legalize any transaction connected with horse-racing, to which the provisions of section 294A of the Indian Penal Code (45 of 1860) apply.

(Whoever keeps any office or place for the purpose of drawing any lottery not being a State lottery or a lottery authorised by the State Government, shall be punished with imprisonment of either description for a term which may extend to six months, or with fine, or with both.

And whoever publishes any proposal to pay any sum, or to deliver any goods, or to do or forbear doing anything for the benefit of any person, on any event or contingency relative or applicable to the drawing of any ticket, lot, number or figure in any such lottery shall be punished with fine which may extend to one thousand rupees.)

Definition of “wager” : Section 30 only says that “agreements by way of wager are void”. The section does not define “wager”. The most illustrative definition of “wager” is that given by HAWKINS J in

Carlill v. Carbolic Smoke Ball Co. : A wagering contract is one by which two persons, professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose.

    If either of the parties may win but cannot lose, it is not a wagering.

To constitute a ‘wagering agreement’, there must be,

1. Uncertain event
2. Mutual chances of Gain or Loss
3. Neither party to have control over the event
4. No other interest in the event.

Babasaheb v. Rajaram :- Two wrestlers agreed to play a wrestling match on the condition that the party failing to appear on the day fixed was to forfeit Rs. 500 to the opposite party, and the winner was to receive Rs. 1125 out of the gate money. The defendant failed to appear in the ring and the plaintiff sued him for Rs. 500.

   It was held that the agreement could not be looked upon as one of wagering in law.

Effects of Wagering Transactions :- A wagering agreement being void cannot be enforced in any court of law. Section 30 expressly declares that. The amount won on a wager cannot be recovered.

Collateral transactions :- In Gherulal Parakh v. Mahadeodas Maiya : The Supreme Court laid down that, “though a wager is void and unenforceable, it is not forbidden by law”.

Hence a wagering agreement is not unlawful under section 23 of ICA, and transactions collateral to it are enforceable. “ Accordingly an agent who paid the losses on wagering transactions was allowed to recover the amount paid by him from his principle.”

Crossword competitions : Coles v. Odhams press : “If skill plays a substantial part in the result and prizes are awarded according to the results of the solution, the competition is not a lottery. Otherwise it is”.

The term ‘void’ means no legal binding. A void agreement is an agreement which is not legally binding, i.e. an agreement which lacks enforceability by law is void.

An agreement that violates any law or whose nature is criminal or is opposed to any public policy or immoral is an illegal agreement. These agreements are void ab initio, and so the agreements collateral to the original agreement are also void. 

A void agreement is not prohibited by Indian Penal Code (IPC), but IPC strictly prohibits an illegal agreement.

A void agreement is not punishable under law whereas an illegal agreement is considered as an offence, hence the parties to it are punishable and penalised under Indian Penal Code (IPC).