Contract laws

Dr. Tabrez Ahmad,
Blog: http://corpolexindia.blogspot.com, 1

Dr. Tabrez Ahmad,

Agenda
 Essentials of contract
 Offer
 Acceptance
 Consideration
 Free consent
 Voidable agreements
 Void agreements
 Kinds of contracts
 Wagering agreements
 Contingent Contract
 Quasi contract
 Performance of contract
 Breach of contract
 Remedies
Dr. Tabrez Ahmad,

Three Pillars of The Contract
 Offer
 Acceptance
 Consideration

Dr. Tabrez Ahmad,

What is a contract?
Section 2(h)
“An agreement enforceable by law is a
contract”.
Thus,
Contract = Agreement + Enforceability at Law

Dr. Tabrez Ahmad,

Agreement?
 Section 2(e)

Promise/(s) Promise/(s)
= Agreement
(in exchange for)

Dr. Tabrez Ahmad,

Promise?
Section 2(b)
Promise = Proposal/Offer + Acceptance

Proposal?
Section 2(a)
Expression of willingness
With a view to seek the assent of the other
Thus, mere expression of willingness doesn’t
constitute offer/proposal.
Dr. Tabrez Ahmad,

Acceptance
Section 2(b)
Giving of assent to the proposal.
Enforceability by Law
Agreements which are not enforceable
Illegal/unlawful agreements, e.g., to
smuggle/to kill
Social Agreements (Balfour vs. Balfour)
Dr. Tabrez Ahmad,

Agreements Declared Void
under ICA
e.g.
 Agreement with or by a minor
 Agreement in restraint of trade
 Marriage brokerage contract
 Wagering/Betting Agreements

Dr. Tabrez Ahmad,

Kinds of Contracts
From the point of view of
Enforceability
 Void
 Voidable
 Valid
Dr. Tabrez Ahmad,

Void Agreement vs. Void Contract
 Void Agreement
i.e., void-ab-initio i.e. unenforceable from the very
beginning
Becomes void (Void Contract)
 Voidable
i.e., void + able
i.e., capable of being declared void
(unenforceable) at the option of one of the parties to
the contract but not at the option of the other.

Dr. Tabrez Ahmad,

Valid Contract
Section 10
To be a valid contract, it must satisfy the following:
1. Offer and Acceptance
2. Consensus-ad-idem (Meeting of minds) i.e.,
persons must agree to the same thing in the same
sense and at the same time.
3. Intention to create legal relationship as against
social relationship or illegal/unlawful relationship.

Dr. Tabrez Ahmad,

4. Free and Genuine Consent, i.e., free from
 coercion
 undue influence
 fraud
 misrepresentation
 mistake
5. Parties competent to contract
6. Lawful consideration and object, i.e.,
something in return and that must be lawful.

Dr. Tabrez Ahmad,

Valid Contract
(‘Object’ and ‘Consideration’ usually overlap.
However, there may be difference at times e.g., object
may be to kill competition and for that purpose in
view, a senior manager of the competitor may be paid a
certain amount to give unrealistically high
quotation.)
Here: Object is to kill competition.
Consideration is :
(i) payment of money
(ii) giving high quotations

Dr. Tabrez Ahmad,

Valid Contract
7. Agreement not declared void.
8. Certainty of Meaning: e.g. sale and
purchase of 100 tonnes of oil. But which
oil? Thus, agreement being uncertain –
not valid.
But, if the seller deals only in one kind of
oil and one variety, then it shall be valid
since it is capable of being made certain.
Dr. Tabrez Ahmad,

Valid Contract
9. Possibility of performance:
Impossibility whether known to the parties
or not, renders a contract invalid.
10. Necessary legal formalities: e.g. sale-
deed of immovable property.

Dr. Tabrez Ahmad,

Void vs. Illegal Agreements
Void Agreement Illegal Agreement
1. Unenforceable 1. Unenforceable
2. Not Punishable 2. Punishable (fine or
3. Collateral imprisonment or
transactions both)
unaffected. 3. Collateral
transactions are
also void.
Dr. Tabrez Ahmad,

Specific and General Offer
 Specific Offer:
 made to a specified person or a group of
persons.
 can be accepted only by the person to whom
made.
Thus, if offer is addressed to ‘A’, ‘B’ cannot
accept it.
 Case Law: Boulton vs. Jones
Dr. Tabrez Ahmad,

Specific and General Offer
 General Offer:
 which is not a specific offer.
 made to the world at large.
 can be accepted by anyone by complying
with the terms of the offer.
 Case Law: Carlill vs. Carbolic Smoke Ball Co.

Dr. Tabrez Ahmad,

Offer vs. Invitation to offer
 Illustrations of Invitation to Offer:
 Prospectus issued by a college.
 Prospectus issued by a company.
 Invitation of bids in an auction.
 Price-catalogues, price lists, quotations
 Display of goods with a price-tag in a shop
window.

Dr. Tabrez Ahmad,

Special Terms in a Contract
Examples: Dry cleaner’s receipt, courier’s receipt,
shipment receipt, insurance policy, etc.
 Binding if communicated or attention drawn to the
fact that there are certain special terms and
conditions.
 Not binding if attention is not drawn and the other
party not aware of.

Dr. Tabrez Ahmad,

Cross Offers & Counter Offers
 Cross Offers
Identical offers cross each other and none of the
parties is aware of the same. Doesn’t result in a
contract unless one of them is accepted.
 Counter Offer
Instead of accepting an offer, the offeree makes a
counter offer, i.e., accepts the same subject to certain
conditions or qualification.

Dr. Tabrez Ahmad,

Contracts through Post
 Communication of Offer
is complete when the offeree has the
knowledge of the same.
 Communication of Acceptance
 It has two aspects, viz.,
 As against the proposer

 As against the acceptor

Dr. Tabrez Ahmad,

As against the proposer
 Communication is complete as soon as a duly
addressed letter of acceptance is put into the course of
transmission.
 Whether the same reaches the proposer or not.

As against the acceptor
 Communication is complete only when the proposer
has received the letter and learnt the contents thereof.

Dr. Tabrez Ahmad,

Communication of Revocation
 Communication of revocation (of offer or
acceptance) is complete:
 As against the person who makes it when it is
put into the course of transmission.
 As against the person to whom it is made,
when it comes to his knowledge.

Dr. Tabrez Ahmad,

 Comparing ‘offer’ to a ‘train of
gunpowder’ and ‘acceptance’ to a
‘lighted match stick’ – How far correct?
 William Anson’s observation though valid in
the English context doesn’t hold good in
India since in India acceptance is revocable.

Dr. Tabrez Ahmad,

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 to
abstain form doing something, such act or abstinence
or promise is called a consideration for the promise”.

Dr. Tabrez Ahmad,

Consideration
 At the desire of the promisor
 Promisee or any other person
 Past, present or future
 Such act, abstinence or promise is called
consideration

Dr. Tabrez Ahmad,

At the desire of the promisor
Durga Prasad V. Baldeo 1880
 Facts: The plaintiff on the order of the collector of a town,
built at his own expense, certain shops in a bazar. The
shops came to be occupied by the defendants who, in
consideration of the plaintiff having expended money, in
the construction, promised to pay him on commission on
articles sold through their agency in the bazar. The
plaintiffs action to recover the commission was rejected.

 The act was the result not of the promise but of the
collector’s order.

Dr. Tabrez Ahmad,

Promisee or any other person
 As long as there is a consideration for a promise, it is
immaterial who has furnished it. It may move from the
promisee, or,if the promisor has no objection, from
any other person

Dr. Tabrez Ahmad,

Privity of Contract and Privity of
Consideration
English Law
In the law of England certain principles are
fundamental. One is that only a person who is a
party to a contract can sue on it. A second
principle is that if a person with whom a contract
not under seal has been made is to be able to
enforce it, consideration must have been given by
him.

Dr. Tabrez Ahmad,

English Law
 1. Consideration must move from the promisee and the
promisee only. If it be furnished by any other person, the
promisee becomes a stranger to the consideration and,
therefore, can not enforce the promise.
 2. A contract can not be enforced by a person who is not a
party to it even though it is made for his benefit. He is
stranger to the contract and can claim no rights under it.

Dr. Tabrez Ahmad,

Tweddle v.Atkinson
30 LJ QB218 1861
The court of Queens Bench refused to allow a beneficiary
who is not a party to a contract to enforce the contract.
Fact: The plaintiff who was to be married to the daughter of
one G and in consideration of this intended marriage G
and the plaintiffs father entered into a written agreement
by which it was agreed that each would pay the plaintiff a
sum of the money. G failed to do so and the plaintiff sued
his executors. Whiteman judge considered it to be an
established principle “ that no stranger to the consideration
can take advantage of a contract, although made for his
benefit”.

Dr. Tabrez Ahmad,

Tweddle v.Atkinson
30 LJ QB218 1861
Judgment
Thus, although the sole object of the contract was to secure a benefit to
the plaintiff, he was not allowed to sue as the contract was made with
his father and not with him.

The case laid the foundation of what subsequently came to be known as
the doctrine of “ privity of contract”.

This principle was affirmed by the House of Lords in Dunlop Pneumatic
Tyre Co. V. Selfridge & Co.

Dr. Tabrez Ahmad,

Dunlop pneumatic tyre Co., Plaintiff V.
Selfridge & Co., Defendant, 1915
 Facts: Plaintiffs sold certain goods to one Dew & Co. and
secured an agreement from them not to sell the goods
below the list price and that if they sold the goods to
another trader they would obtain from him a similar
undertaking to maintain the price list. Dew & Co. sold the
motor tyres to the defendants who agreed not to sell the
tyres to any private customer at less than the list prices. The
plaintiff sued the defendant for breach of this contract.

Dr. Tabrez Ahmad,

Dunlop pneumatic tyre Co., Plaintiff V.
Selfridge & Co., Defendant, 1915
 Judgment: It was held by Lord Viscount
HALDANE that assuming that the plaintiffs were
undisclosed principals no consideration moved from
them to the defendants and that the contract was
unenforceable by them

Dr. Tabrez Ahmad,

Sec 25. An agreement without
consideration is void unless
Clause (i) It is in writing and registered.
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 parties standing in a
near relation to each other;

Dr. Tabrez Ahmad,

 Clause(ii) or is a promise to compensate, wholly or in
part, a person who has already voluntarily done
something for the promisor, or something which
which the promisor was legally compellable to do ;

Dr. Tabrez Ahmad,

 Clause (iii) or is a promise to pay a debt barred by
limitation-
It is a promise, made in writing and signed by the
person to be charged therewith, or by his agent
generally or specially 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
the limitation of the suits

Dr. Tabrez Ahmad,

Explanations
 1. Nothing in section 25 shall affect the validity, as between
the donor and donee, of any gift actually made
 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 to the promisor was freely
given.

Dr. Tabrez Ahmad,

Dr. Tabrez Ahmad,

Section 10 of Indian Contract Act
What agreements are contracts .– 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.
Dr. Tabrez Ahmad,

By
Dr. Tabrez Ahmad,
Professor of Law

Dr. Tabrez Ahmad,

Vitiating Factors
A contract may be tainted by defects that could affect its validity
making it void, voidable, illegal or unenforceable. Vitiating
factors include:
1. Mistake
2. Coercion and Duress
3. Undue Influence
4. Unconscionable contracts
5. Fraud
6. Misrepresentation
7. Mistake
8. Minor
9. Illegality
10. Void agreements

Dr. Tabrez Ahmad,

Definition
 According to sec. 10 free consent is an essential
requirement of a contract. Sec. 14 defines “free
consent”.

Dr. Tabrez Ahmad,

Sec 14 “free consent”
Sec 15 to 18

Dr. Tabrez Ahmad,

Vitiating factors and their effect
Where consent to an agreement is caused by
coercion, undue influence, fraud or
misrepresentation, the agreement is a contract
voidable at the option of the party whose consent
was so caused.
Where consent is caused by mistake, the agreement
is void.

Dr. Tabrez Ahmad,

Coercion
Sec 15.
“Coercion” is the committing, or threatening to commit, any
act forbidden by the Indian Penal Code (XLV 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
(XLV 1860), is or is not in force in the place where the
coercion is employed.

Dr. Tabrez Ahmad,

Techniques of causing coercion
Consent is said to be caused by coercion when it is
obtained by pressure exerted by either of the
following techniques:
(1) Committing or threatening to commit any act
forbidden by the Indian Penal Code; or
(2) Unlawfully detaining or threatening to detain
any property.

Dr. Tabrez Ahmad,

Duress
Duress = actual or threatened violence, or unlawful
restraint or threats, directed towards the contracting party
or a member of his closed family.

Effect : contract voidable

Barton v Armstrong [1975] 2 All ER 465: former chairman
threatened to kill the MD unless company bought back his
shares – co did so – held: voidable

Rationale: no free choice ; negate consent no genuine
intention to contract
Dr. Tabrez Ahmad,

Economic duress
Economic duress = Apparent consent is induced by
illegitimate economic pressure from the other party

Pau On v Lau Yiu Long [1980] A C 614: consent is
revocable  contract is voidable

Remedy: voidable
Right to avoid may be lost if the innocent party chooses to
affirm (The Atlantic Baron [1979] QB 705))

Dr. Tabrez Ahmad,

Coercion Duress or Menace
1. Indian Law 1. English Law
2. Definition is wide 2. Definition is Narrow
3. It includes the unlawful 3. It consist in actual or
detention of property also. threatened violence or
Coercion may be committed by imprisonment of the contracting
any person, not necessarily a party or his wife, parent or child
party to the contract. It need by the other party or by any one
not be directed against the acting with his knowledge and
contracting party. It may be for his advantage
directed against any person,
even if he is a stranger.

Dr. Tabrez Ahmad,

Undue influence

Dr. Tabrez Ahmad,

Undue Influence
Sec. 16 of the Indian Contract Act 1872 defines Undue
Influence.

Dr. Tabrez Ahmad,

Undue influence
 A party to a transaction, though consenting to it,
may not give a free consent because he is exposed
to such influence from the other party as to
deprive him of the free use of his judgment. In
such a case, the transaction will be set aside. If
property has passed, equity will order restitution,
and, if necessary, follow the property into the
hands of third parties.

Dr. Tabrez Ahmad,

More than mere influence must be proved, so as to
render influence as ‘undue’ in the language of law.
In Lingo Bhimrao Naik V. Dattatraya Shripad Jamadagni,
the diffrence between legitimate persuation and
undue influence has been described:

Dr. Tabrez Ahmad,

Legitimate persuasion Undue influence
1. Persuasion, appeal to the 1. Pressure of whatever
affections or ties of character, whether acting on
kindred, to a gratitude of the fear or the hopes, if so
sentiment for past exerted as to overpower the
services, or pity for volition without convincing the
future destitution or the judgment, is a species of
like are all legitimate and restraint under which no valid
may be fairly passed on a contract or transaction can be
promisor. made

Dr. Tabrez Ahmad,

Legitimate persuasion Undue influence

2. A party may be led but 2. Importunity or threats such
not driven and his will as the promisor has not the
courage to resist, moral command
must be the offspring of asserted and yielded for the sake
his own volition and not of peace and quiet, or of escaping
someone else’s. from distress of mind or social
discomfort, these if carried to a
degree in which the free play of
the promisor’s judgment,
discretion or wish is overborne,
will constitute undue influence,
though no force is either used or
threatened.
Dr. Tabrez Ahmad,

Undue Influence
Conditions:
(1) A relationship between the parties;
(2) One party acquired over another a measure of
influence or ascendancy; and
(3) The ascendant person takes unfair advantage.
(see Royal Bank of Scotland plc v Etridge (No.2) [2001]
3 WLR 1021, 1029; Bank of China (Hong Kong) Ltd
v Wong King Sing [2002] 1 HKLRD 358)

Dr. Tabrez Ahmad,

Undue Influence
2 types of undue influence:
1. Actual undue influence
2. Presumed undue influence

Dr. Tabrez Ahmad,

Actual Undue Influence
Conditions:
1. The wrongdoer had the capacity to influence the
complainant;
2. Influence was in fact exerted;
3. Influence was undue;
4. The effect: the complainant enter into the contract
- sufficient: the influence was a significant reason for
causing
- no need to prove manifestly disadvantage

Effect: Contract voidable
Dr. Tabrez Ahmad,

Actual Undue Influence
Williams v Bayley (1866) LR 1 HL200; Diners Club v Ng
Chi Sing [1987] 1 HKC 78: father compelled to
guarantee son’s debt – guarantee: voidable

Dr. Tabrez Ahmad,

Presumed undue influence
Conditions:
1. A relationship of trust and confidence between the wrongdoer and the
innocent party;
2. The nature of the relationship is of a nature that it is fair to presume that
the wrongdoer had abused that relationship – a rebuttable presumption
3. Procuring the innocent party to enter into contract; and
4. The contract was manifestly disadvantageous to the innocent party.

Undue influence can be rebutted by:
a. The complainant had exercise free and independent will; or
b. The complainant had full knowledge and could not have been misled; or
c. The complainant had competent and independent advice from another.

Dr. Tabrez Ahmad,

Unconscionable contracts
The law takes a further step in protecting the innocent
under the doctrine of “unconscionable contracts”.

Commercial Bank of Australia v Amedio (1983) 151
CLR 447 per Mason J:
Undue influence: the will of innocent party was not
independent
Unconscionable contract: disadvantage position (e.g.
poverty, sickness, age, sex, infirmity of body and mind,
drunkeness, illiteracy, lack of education, lack of
assistance or explanation where assistance is necessary)
vis-à-vis the other party [and the other party knew it]
Dr. Tabrez Ahmad,

Unconscionable contracts
The Unconscionable Contract Ordinance (Cap. 458)
- A consumer protection legislation (others being: SOGO, Control of
Exemption Clauses Ordinance, MO)
- Applies only in consumer sales
- The court may refuse to enforce, enforce the remainder of the
contract, limit/revise/alter the unconscionable part of the contract
- The court may take the initiative to examine the unconscionble
provisions
- List of matters the court will consider: relative bargaining positions of
the parties, etc.
See Hang Seng Credit Card Ltd v Tsang Nga Lee & Others [2000] 3
HKC 269 : credit card debt plus costs on indemnity basis – falls
under Cap 458 – “greedy bank” case – unconscionable contract

Dr. Tabrez Ahmad,

Doctrine of Inequality of Bargaining
Power
There are cases under the English law, where equity
intervened not because the terms were harsh or oppressive,
but because it refused to allow one party to take advantage
of the others weakness or need. The pressure in these cases
was not of undue influence or personal pressure, but arose
because the other party took advantage of its economic
power and necessity of the vendor or the borrower which
has been termed as pressure resulting from an inequality of
bargaining position. This doctrine has been applied as an
independent principle.

Dr. Tabrez Ahmad,

Lloyds Bank Ltd V Bundy
[1974] 3 All ER 797
A further guarantee and a charge were given by the father to a
bank on the advice of the bank manager in regard to the
debt of his son. The father was held to have complete faith
and did not get outside advice. The court of appeal held
that a special relationship of confidence existed between
the bank and the father and the last guarantee and charge
were liable to be set aside for undue influence. Lord
denning considered them voidable on the large ground of
inequality of bargaiening powers. He stated:

Dr. Tabrez Ahmad,

“There are cases in our books in which the courts
will set aside a contract, or a transfer of property,
where the parties have not met on equal terms-
when one is so strong in the bargaining power and
the other so week that, as a matter of common
fairness, it is not right that the strong should be
allowed to push the weak to the wall”

Dr. Tabrez Ahmad,

Central inland water transport corporation Ltd. V
Brojonath Ganguly AIR 1986 SC 1571
The Supreme Court considered the the question whether
relief could be granted for an unconscionable bargain,
and under which head should it fall.

Dr. Tabrez Ahmad,

Fraud

Dr. Tabrez Ahmad,

Fraud
Sec 17 of the Indian Contract Act 1872 defines fraud.

Dr. Tabrez Ahmad,

Ingredients of fraud
Analysis of Sec 17(1) shows the following ingredients:
(i) there should be a suggestion as to a fact ;
(ii) the fact suggested should not be true;
(iii) the suggestion should have been made by a person who
does not believe it to be true; and
(iv) the suggestion should be made with intent either to
deceive or to induce the other party to enter into the
contract.

Dr. Tabrez Ahmad,

Representation
A representation is a statement of fact, past or present; it is
distinct from a statement of opinion, though in certain
circumstances a statement of opinion may be regarded as a
statement of fact. In order to enable the representee to
avoid the contract, the fraudulent misrepresentation has to
be material, i.e., such that a reasonable man would have
been influenced by it in deciding whether or not to enter
into the contract.

Dr. Tabrez Ahmad,

Ambiguous Statement
Where the representor makes an ambiguous
statement, the person to whom it is made must
prove that he understood that statement in the
sense that it was in fact false. The representor will
be guilty of fraud if he intended the statement to
be understood in that sense, and not if he honestly
believes it to be true, but the person relying on it
understands it in a different sense.

Dr. Tabrez Ahmad,

Active Concealment of Facts
It is a fraud where a party to the contract knows or
believes a fact to be true, but conceals it actively from
the other party with a view to induce that person to
enter into a contract. This clause must be read with the
explanation, under which mere silence does not
amount to fraud.

Dr. Tabrez Ahmad,

Mere non discloser of some immaterial facts would not per se
give a right to rescission, unless it is further found that the
consent has been secured by practicing some deception.
Where a seller sold a property already sold by him to a third
person, his conduct amounted to active concealment and
fraud, and the could recover the price despite the
agreement that the seller could not be responsible for
defect in title.

Dr. Tabrez Ahmad,

Mere Silence is no fraud
When Silence is fraud
Duty to Speak ( Contracts Uberrima fidei)
Law of Caveat Emptor
Law of Caveat Vendetta

Dr. Tabrez Ahmad,

Damages for fraud
The principles applicable in assessing damages for
fraudulent misrepresentation have been stated by
Lord Browne Wilkinson in
Smith New Court Securities Ltd. V Scrimgeour
Vickers ( Asset Management ) Ltd. [1996] 4 All ER
769 (HL)

Dr. Tabrez Ahmad,

Misrepresentation

Dr. Tabrez Ahmad,

Misrepresentation
Sec. 18 of the Indian Contract Act 1872 defines
Misrepresentation.

When a person making a false statement believes
the statement to be true and does not intend to
mislead the other party to the contract, it is known
as “Misrepresentation”.

Dr. Tabrez Ahmad,

Breach of legal duty
For example, section 57, Indian Easement Act, 1882 lays
down that the grantor of a license is bound to disclose to
the licensee any defect, which is likely to be dangerous to
the person or property of the licensee, of which the
grantor is aware but the licensee is not. Omission to
make such a disclosure, if it is without any intention to
deceive, would amount to misrepresentation.
If one party, acting innocently, causes another party to
make a mistake as to the substance of the thing which is
the subject of the agreement, there is said to be
misrepresentation.

Dr. Tabrez Ahmad,

Negligent Misrepresenttaion
 Negligent misrepresentation is one made carelessly or without
reasonable grounds for believing it to be true; but it can not
be so regarded unless the representor owed a duty to the
representee to be careful. There can be liability in negligence
in respect of an innocent though careless misstatement which
causes financial loss, but where there is specific disclaimer of
responsibility there is no liability. The responsibility exists
even where there is no fiduciary relationship between the
parties.
 In Derry V Peek (1889) 14 A.C 337, it was held that the
negligent misstatement was one made carelessly or without
reasonable grounds for believing it to be true; but it could not
be so regarded unless the representor owed a duty to the
representee to be careful.

Dr. Tabrez Ahmad,

In a later case
Nocton v. Ashburton (1914-15) All ER 45,
a solicitor was sued by his client for giving wrong advice
whereby he was induced to release a part of the security
and thereby the security became insufficient and it was
also alleged that the advice was given to benefit himself (
the solicitor) and that the solicitor knew that the security
will become insufficient.
The House of Lords held that the mortgagee was entitled to
relief for the breach of duty by the solicitor towards his
clients, as the fiduciary relationship required a duty to
take care.

Dr. Tabrez Ahmad,

In Hedley Byrne & Co. Ltd v Heller & Partner Ltd, (1963) 2
All ER 575.
Advice given in the course of social relationships would not
be a ground of liability, they also made it clear that any
special relationship will suffice. In case of professional
relationship, even where there is no contract between the
parties it would give rise to a duty of care whenever the
representor knew that the representee was likely to act
on the representation.

Dr. Tabrez Ahmad,

Misrepresentation
Misrepresentation = a false representation of fact
made orally or in writing or by conduct.

Dr. Tabrez Ahmad,

Misrepresentation
Representation must be:
1. On existing facts
2. On false existing factsShum Kong
3. On false material existing facts
4. Induce the innocent contracting party to enter into the
contract
5. the innocent party has suffered loss as a result of such
inducement

See Shum Kong v Chu Ting Lin [2001] HKEC 651 – sale
of a village house (own property, 700 sq.ft) with garden
(leased) under misrepresentation
Dr. Tabrez Ahmad,

Misrepresentation
Distinguish from:
1. Future facts
2. Intention of future conduct
3. Opinion

Dr. Tabrez Ahmad,

Misrepresentation
2 types of misrepresentations:
(1) Fraudulent
(2) Innocent
(3) Negligent

Dr. Tabrez Ahmad,

Fraudulent misrepresentation
= a false statement made by a person with a dishonest (“fraud”) intent

Fraud is proved if the misrep is made by the maker:
1.Knowingly
2.Without belief in its truth, or
3.Recklessly (don’t care if it is true or not)
An honest belief at the material time is a good defence:
Derry v Peek (1889) 14 App Cas 337: DIR rep that the company could
run trams by steam or mechanical power – reality: it could not do so –
DIR held an honest belief- Held: good defence
Smith New Court Securities Ltd v Scrimgeour Vickers (Asset
Management) Ltd [1992] BCLC 1104 : D said that there were
interested parties to buy the shares and led P to purchase them –
reality: no interested buyer and D knew that at the time of making rep
Held: fraud
Dr. Tabrez Ahmad,

Fraudulent misrepresentation
Remedies: depends on whether fraudulent misrep had
become a term of the contract :
a. Become a term  the other party may:
(1) rescind the contract, or
(2) affirm the contract and claim damages
for breach of contract,
(3) affirm the contract and claim damages
under the tort of deceit
b. Not become a term  the other party may:
(1) rescind the contract, and/or
(2) claim damages under the tort of deceit
Dr. Tabrez Ahmad,

Innocent misrepresentation
= false statement honestly believing to be true and has
reasonable grounds to believe so up to the moment of
contracting

Remedies: Rescission (not plus damages)
Misrepresentation Ordinance s. 3(2) :
Damages in lieu of rescission if equitable

Dr. Tabrez Ahmad,

Negligent misrepresentation
Elements to be proved:
1.a duty on the representor to refrain from making a false statement;
and
2.The representor is in breach of this duty

Duty exists with special relationships between representor and
representee, e.g. professionals in their areas of expertise

Remedies: rescission, damages and/or indemnity
MO s.3(2): court has a wide discretion to affirm the contract and award
damages in lieu of rescission

Dr. Tabrez Ahmad,

Mistakes
3 types:
1. Common mistakes
2. Mutual mistakes
3. Unilateral mistakes

Dr. Tabrez Ahmad,

Common mistakes
Common mistakes as to the existence of the subject matter:
Couturier v Hastie (1852) 8 Exch 40: contract for the sale
of corn – unknown to the parties, corn went bad – Held :
no contract

Common mistakes as to ownership of the subject matter:
Cooper v Phibbs (1867) 2 LR 2 HL 149: contract for sale
of a fishery- mistake as to ownership – Held: void

Common mistakes as to quality of the subject matter:
Oscar Chess v Williams [1957] 1 All ER 325: unless of
some fundamental nature, contract not void.
Dr. Tabrez Ahmad,

Mutual mistakes
No meeting of minds – no contract
Scriven Bros v Hindley [1913] 3 KB 564: mistake as to the
lots of goods – Held: no contract

Dr. Tabrez Ahmad,

Unilateral Mistakes
Mistake by one party while the other party knows the truth. Mainly
on identity of the parties. Normally 3 parties are involved:
1. The innocent party who mistakens
2. The rogue
3. The innocent party who was being mistakened

2 situations:
a. Contracts made by correspondence
b. Contracts made face to face

Dr. Tabrez Ahmad,

Contracts made by correspondence
Effect: Contract void

Cundy v Lindsay (1876) 1 QBD 348
A ordered some handherchiefs from B and sold them to C
(being absolutely innocent)
Held: A does not have a good title, cannot therefore
transfer a good title to C.

Dr. Tabrez Ahmad,

Contracts made face to face
Contract may be voidable.

Phillips v Brooks Ltd [1919] 2 KB 243
A pretended to be a rich and famous person, bought a diamond ring
from B. He sold the ring to C, dishonoured the cheque and then
disappeared. Held: valid contract and was bound. B cannot claim
the ring from C.

Levis v Averay [1972] 1 198 – similar result – voidable

Gist:(1) what the innocent contracting party thought he was
contracting with?
(2) is the identity vital influence his decision to contract or not ?

Dr. Tabrez Ahmad,

Void Agreements
 Agreement of which the consideration or the object is not
lawful (Sec. 23 and 24)
 Agreement without consideration (Sec. 25)
 Agreement in restraint of marriage (Sec. 26)
 Agreement in restraint of trade (Sec. 27)
 Agreement in restraint of legal proceedings(Sec.28)
 Agreement which is ambiguous and uncertain (Sec. 29)
 Agreement by way of wager ( Sec. 30)
 Agreement to do an impossible act ( Sec. 56)

Dr. Tabrez Ahmad,

Agreement in restraint of trade void Sec. 27 of
the Indian Contract Act 1872
 Exceptions
 Sale of Goodwill
 Partnership Act, sec. 11, 36, 54
 Trade combination
 Restraints during employment
 Solus or exclusive dealing agreements
Gujarat Bottling Co. v Coca Cola Co.(1995) 5 SCC 545

Dr. Tabrez Ahmad,

Agreements in restraint of legal proceedings void

Dr. Tabrez Ahmad,

Agreements in restraint of legal proceedings void
Sec. 28 of the Indian Contract Act 1872.
An agreement is void to the extent it restricts absolutely a
party from enforcing his contractual rights by usual
proceedings in ordinary courts; or if it limits the time
within which he may enforce his rights. It saves two types
of contracts: (a) those with a stipulation that an arbitration
award shall proceed a cause of action, and (b) a contract to
refer existing disputes to arbitration.

Dr. Tabrez Ahmad,

Restraint of legal proceedings
No man can exclude himself from the protection of courts by
contract. The citizen has the right to have his legal position
determined by the ordinary tribunals, except ,subject to
contract (a) when there is an arbitration clause which is
valid and binding under the law ; and (b) when parties to a
contract agree as to the jurisdiction to which dispute in
respect of the contract shall be discharged. The section
affirms the Common Law. Its provisions appear to embody
a general rule recognised in the English Courts which
prohibits all agreements purporting to oust jurisdiction of
the Courts.

Dr. Tabrez Ahmad,

Adsolute restriction
The sec. 28 does not apply where the restriction is not
absolute. Where one out of two competent
jurisdictions are excluded by agreement, it does not
amount to absolute of ouster jurisdiction, and such a
clause does not violate sec. 28. ( ABC Laminart Pvt.
Ltd. V AP Agencies, Salem AIR 1989 SC 1239.)

Dr. Tabrez Ahmad,

26. Agreement in restraint
of marriage void.
 Every agreement in restraint of the marriage of any person, other
than a minor, is void.
COMMENTS
 The wide and unguarded language of this section is taken from
the draft Civil Code of New York (S. 8.36). It seems probable that a
contract limited to not marrying a certain person or any one of a
certain definite class of persons would be held good. Apparently
such agreements must be held void in India. The Allahabad High
Court expressed doubt on the question whether partial or
indirect restraint on marriage was within the scope of S. 26.

Dr. Tabrez Ahmad,

 The Hindu law recognises polygamy, and as to Muhammadan law
a man may have as many as four wives at a time subject to Family
Laws restrictions. But neither law binds a man to marry more
than one wife. It would seem, therefore, that a provision in a
Kabinnamah by which a Muhammadan husband authorises his
wife to divorce herself from him in the event of his marrying a
second wife is not void, and if the wife divorces herself from the
husband on his marrying a second wife, the divorce is valid, and
she is entitled to maintenance from him for the period of iddat.

Dr. Tabrez Ahmad,

 There is a distinction between restraint on
marriage generally and a restraint on remarriage;
and a condition in a wakf that if the widow of a co-
sharer remarried she should forfeit her right to
the profits under the wakf was accordingly
upheld.

Dr. Tabrez Ahmad,

29. Agreements void for uncertainty.
 Agreements, the meaning of which is not certain, or capable of being
made certain, are void.
Illustration
 (a) A agrees to sell to 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 to B one hundred tons of oil of a specified
description, known as an article of commerce. There is no uncertainty
here to make the agreement void.

Dr. Tabrez Ahmad,

 (c) A, who is a dealer in coconut-oil only, agrees to sell to B "one hundred tons
of oil." The nature of A's trade affords an indication of the meaning of the
words, and A has entered into a 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 Bhubaneswar. "There is
no uncertainty here to make the agreement void.
 (e) A agrees to sell to B "one thousand maunds of rice at a price to be fixed by
C." As the price is 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.

Dr. Tabrez Ahmad,

COMMENTS
 Ambiguous contracts.---The text and (with one addition) the illustrations of this section
follow the draft of the Indian Law Commissioners with only formal variation. The
Illustrations are plain, and sufficient to explain the meaning of the section.
S. 93 of the Evidence Act provides that when the language of a document is ambiguous or
defective no evidence can be given to explain or amend the document. Sec also Ss. 94-97
of the same Act. Neither will the Court undertake to supply defects or remove
ambiguities according to its own notions of what is reasonable; for this would be not to
enforce a contract made by the parties, but to make a new contract for them. The only
apparent exception to this principle is that when goods are sold without naming a price,
the bargain is understood to be for a reasonable price. This was probably introduced in
England on the assumption that there was an ascertainable market price, and then
extended to all cases.

Dr. Tabrez Ahmad,

 Where the defendants, describing themselves as residents of a certain place,
executed a bond and hypothecated as security for the amount "our property,
with all the rights and interest", it was held that the hypothecation was too
indefinite to be acted upon. The mere fact that the defendants describe
themselves in the bond as residents of a certain place is not enough to indicate
their property in that place as the property hypothecated. If they had described
themselves as the owners of certain property it would then have been
reasonable to refer the indefinite expression to the description. And where the
defendant passed a document to the Agra Savings Bank whereby he promised
to pay to the manager of the bank the sum of Rs. 10 on or before a certain date
"and a similar sum monthly every succeeding month," it was held that the
instrument could not be regarded as a promissory note, as it was impossible
from its language to say for what period it was to subsist and what amount was
to be paid under it.

Dr. Tabrez Ahmad,

 Similarly, where in an agreement for the sale of goods, the seller reserves the right to vary
the price at will, there is no contract. A compromise stating: "The following five
gentlemen shall decide all matters relating to our movable and immovable property" was
held to be too ambiguous to be enforced. An agreement to grant a lease when no date of
commencement is expressly or impliedly fixed cannot be enforced. But when the
commencement of a lease is dependent upon a contingency, which has occurred, the
agreement can be enforced. An agreement to pay a certain amount after deductions as
would be agreed upon between the parties is void for uncertainty. It has also been held
that an agreement to refer an arbitration to a person, who has been described in
uncertain terms is void. But where the proprietor of an indigo factory mortgaged to B all
the indigo cakes that might be manufactured by the factory from crops to be grown on
lands of the factory from the date of the mortgage up to the date of payment of tile
mortgage debt, it was held that the terms of the mortgage were not vague, and that the
mortgage was not void in law. It has been suggested that an agreement is too uncertain to
be enforced if no limit to the time of performance is expressed or can be inferred from
the nature of the case. This does not appear acceptable as a general proposition

Dr. Tabrez Ahmad,

 Void agreement, connotation of---Agreements meaning
whereof is not certain or capable of being made certain,
held, would be void---Where both contracting parties are
at consensus ad idem with regard to essential terms of
contract, any uncertainty or vagueness which is incapable
of being ascertained, would have effect of vitiating
contract---In letter of guarantee there was no vagueness or
uncertainty, which could vitiate contract.

Dr. Tabrez Ahmad,

 Applicability---Agreement is void only when it is uncertain and
unascertainable---Agreement capable of being ascertained---Not void.
Under section 29 of the Contract Act, it is only when the meaning of an
agreement is not certain or capable of being made certain that the agreement
becomes void.
When, therefore, the sellers told the buyers that each shipment shall be treated
as if separate contracts were made for it and they shall be bound to accept it
even if this shipment was only in respect of a part of the goods and the buyers
agreed to this condition, the agreement is not void as it is capable of being
ascertained.

Dr. Tabrez Ahmad,

 Vague contract---When not enforceable. Section 29 is based upon
the principle that the contracting parties must be shown to be at ad
idem with reference to the essential terms of the contract and,
therefore, if there is any vagueness or uncertainty incapable of being
made certain the contract fails for vagueness. For, in that case the
parties cannot be said to agree to the same thing in the same sense.
Therefore merely because the terms of the arbitration agreement are
capable of different and various interpretations it cannot ipso facto be
liable to be struck down as void. It can only be regarded as void for
uncertainty if its meaning is not certain or capable of being made
certain as provided by section 29.

Dr. Tabrez Ahmad,

 Terms of contract not ascertainable---Contract void
and enforceable. Held: The document being incomplete,
as its terms are not ascertainable with reasonable certainty,
it comes within the mischief of section 29 and is void and
by virtue of the provisions of S. 21 (a) of the Specific Relief
Act cannot be enforced specifically.

Dr. Tabrez Ahmad,

30. Agreement 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 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 awarded to the winner or winners of any horse-race.
Section 294-A of the Indian Penal Code not affected. Nothing in this
section shall be deemed to legalise any transaction connected with horse
racing, to which the provisions of section 294-A of the Indian Penal Code
apply.

Dr. Tabrez Ahmad,

Wagering contract.---
 This section represents the whole law of wagering entracts now in
force.---There is no technical objection to the validity of a wagering
contract. It is an agreement by mutual promises, each of them
conditional on the happening or not happening of an unknown event.
So far as that goes, promises of this form will support each other as well
as any other reciprocal promises. It would have been better if the
Courts in England had refused, on broad grounds of public policy, to
admit actions on wagers; but this did not occur to the Judges until such
actions had become common; and, until a remedy was provided by
statute, they could only find reasons of special public policy in special
cases, which they did with almost ludicrous ingenuity.

Dr. Tabrez Ahmad,


In a case of life insurance, Fulton J. said: "What is the meaning of the phrase
'agreements by way of wager' in S. 30 of the Contract Act? ...... Can it be that
the words mean something different in India from what the corresponding
words 'agreement by way of wagering' mean in England? I do not see how such
an argument can be maintained, or how the fact that 14 Geo. III. C. 48 is not in
force in India affects the question.
A certain class of agreements such as bets, by common consent, come within
the expression 'agreements by way of wagers'. Others, such as legitimate forms
of life insurance, do not, though, looked at from one point of view, they appear
to come within the definition of wagers. The distinction is doubtless rather
subtle, and probably lies more in the intention of the parties than in the form
of the contract.

Dr. Tabrez Ahmad,

 There is no wager unless both parties run the risk of loss
and both parties have a chance of gain. Where two
wrestlers therefore agreed to a contest with a stipulation
that the wrestler who failed to appear should forfeit Rs. 500
and that the winner, if the contest took place, should
receive a fixed sum out of the gate-money, in a suit to
recover the Rs. 500 the defence of gaming and wagering
failed

Dr. Tabrez Ahmad,

By way of wager"---
 There is no distinction between the expression "gaming and wagering," and the expression "by way of
wager," used in this section. The cases therefore bearing on the expression used are still useful in
construing the expression "by way of wager," used in the present section.
Wagering contracts may assume a variety of forms, and a type with which the Courts have, constantly
dealt is that which provides for the payment of differences in stock transactions, with or without
colourable provisions for the completion of purchases. Such provisions, if inserted, will not prevent
the Court from examining the real nature of the agreement as a whole. "In order to constitute a
wagering contract neither party should intend to perform the contract itself, but only to pay the
differences". It is not sufficient if the intention to gamble exists on the part of only one of the
contracting parties. Contracts are not wagering contracts unless it be the intention of both
contracting parties at the time of entering into the contracts under no circumstances to call for or give
delivery from or to each other. It is not necessary that such intention should be expressed. If the
circumstances are such as to warrant the legal inference that they never intended any actual transfer
of goods at all, but only to pay or receive money between one another according as the market price of
the goods should vary from the contract price at the given time, that is not a commercial transaction,
but a wager on the rise or fall of the market.

Dr. Tabrez Ahmad,

 On the other hand, the modus operandi may be such as to raise a presumption
against the existence of a common intention to wager. This infrequently
happens when agreements of a speculative character are entered into through
the medium of brokers, and when, according to the practice of the market, the
principals are not brought into contact with each other, nor do they know the
name of the person with whom they are contracting, until after the bought and
sold notes are executed. Under circumstances such as these, when a party
launches his contract orders he does not know with whom the contracts would
be made. And this presumption is considerably strengthened when the broker
is authorised by the principal to contract with third persons in his (the
broker's) own name; for the third person may in such case remain undisclosed
even after the contract is made. But the presumption may be rebutted by
evidence of a common intention to wager, though the contract has been
brought about by a broker.

Dr. Tabrez Ahmad,

 The presumption against a wager was applied in a case where the transactions were in
Government paper to the extent of about half a crore of rupees, and the plaintiff was both
stockbroker and stockjobber, and the defendant was a stockjobber. The magnitude of the
transactions in the case was set up by the defendant to support the contention that the
transactions were by way of wager, and reliance was placed on the Privy Council decision.
But the contention was overruled and the Court said: "In the Privy Council case the
defendant was a rice miller or a producer by trade, and. the wager related to quantities of
rice enormously out of proportion to his output and capital, deliverable at option from a
number of specified mills. Here there is, I think, sufficient proof that the defendant was
known in the market as the largest of jobbers, and the capital available for the purchases
which he bargained for was at least presumably to be supplied by the constituents for
whom a jobber is ordinarily supposed to be acting."

Dr. Tabrez Ahmad,

Teji mandi transaction.---
 Teji mandi contracts were thus described; "It would appear that what happens
in a contract of this nature is that one party pays a premium to the other party
thus acquiring an option to buy and sell, as he decides, a certain quantity of
gold at a certain rate on a certain date. Either on, or some date prior to, that
date the put. chaser decides whether he will buy or sell. According to his
decision, communicated to his broker, the broker enters into a contract with
some third person in order to meet the situation. On the due date the parties
can either take or give delivery of the stipulated quantity of gold or settle on the
difference." In a Bombay case Beaman J. held that these transactions were by
way of wager, and they were void under this section, and adhered to this view in
a later case. But at present time the presumption is that a teji mandi is not a
mere wagering transaction; and this, it is submitted, is the correct rule.

Dr. Tabrez Ahmad,

Agreements between Pakka Adatia and his
constituents.---
 It was at one time held in some Bombay cases that a Pakka adatia was merely the agent of
his constituent, and that therefore no transaction between them could be a wagering
transaction. However, it was held on the evidence of custom that as regards his
constituent the pakka adatia was a principal and not a disinterested middleman bringing
two principals together. Since that decision it has been held by the High Court of Bombay
in two cases that a transaction between a pakka adatia and his constituent may be by way
of wager like any other transaction between two contracting parties, and that the
existence of the pakki adat relationship does not of itself negative the possibility of a
contract being a wagering contract as between them. One of those cases was taken to the
Privy Council, and though the decree of the High Court of Bombay was reversed, the
Privy Council taking a different view of the facts, the principle laid down by the Bombay
High Court was affirmed by the tribunal. The same view has been taken by the High
Court of Allahabad, and the East Punjab High Court.

Dr. Tabrez Ahmad,

 Agreement collateral to wagering contracts.---Thus for
our observations are confined to suits between the
principal parties to a contract. Different considerations
apply where the suit is brought by a broker or an agent
against his principal to recover his brokerage or
commission in respect of transactions entered into by him
as such, or for indemnity for losses incurred by him in such
transactions, on behalf of his principal.

Dr. Tabrez Ahmad,

 There is no statute which declares agreements collateral to wagering contracts
to be void. Nor is there anything in the present section to render such
agreements void. It has accordingly been held that a broker or an agent may
Successfully maintain a suit against his principal to recover his brokerage,
commission, or the losses sustained by .him, even though contracts in respect
of which the claim is made are contracts by way of wager. It does not follow
because a wagering contract is void that contracts collateral to it cannot be
enforced. The fact that a person has constituted another person his agent to
enter into and Conduct wagering transactions in the name of the latter, but on
behalf of the former (the principal) amounts to a request by the principal to the
agent to pay the amount of the losses, if any, on those wageing transactions and
if such payment is made, the agent is entitled to recover the amount from him.

Dr. Tabrez Ahmad,

 Conversely, an agent who has received money on account of a wagering
contract is bound to restore the same to his principal. A deposit made
by one gambler with another, as security for the observance of the
terms of a wagering agreement, can be recovered, unless the amount
has in fact been appropriated for the purpose for which it has been
deposited. On the same principle a suit will lie to recover a sum of
money paid by the plaintiff for the defendant and at his request,
though such sum represents the defendant's loss on a bet. Similarly
money lent for gaming purposes, or to enable the defendant to pay off a
gambling debt is recoverable. Such transactions are neither against the
provisions of the present section nor of S. 23.

Dr. Tabrez Ahmad,

 But the transaction in respect of which the brokerage, commission, or
losses are claimed must amount to a wagering agreement, and it is no
answer to a suit by a broker in respect of such a claim against his
principal that, so far as the defendant was concerned, be entered into
the contracts as wagering transactions with the intention of paying the
differences only, and that the plaintiff must have known of the inability
of the defendant to complete the contracts by payment and delivery,
having regard to his position and means. It must, further, be shown
that the contracts which the plaintiff entered into with third persons
on behalf of the defendant were wagering contracts as between the
plaintiff and those third persons.

Dr. Tabrez Ahmad,

 An agreement to settle differences arising out of a nominal
agreement for sale which was really a gamble is no less void
than the original wagering transaction. The result therefore
is that though an agreement by way of wager is void, a
contract collateral to it or in respect of a wagering
agreement is not void.

Dr. Tabrez Ahmad,

 Speculative transactions.---Speculative transactions must be distinguished from
agreements by way of a wager. This distinction comes into prominence in a class of cases
where the contracts are entered into through brokers. The modus operandi of the
defendant in this class of cases is, when he enters into a contract of purchase, to sell again
the same quantity deliverable at the same time in one or more contracts, either to the
original vendor or to some one else, so as either to secure the profit, or to ascertain the
loss, before the vaida day; and, when he enters into a contract of sale, to purchase the
same quantity before the vaida day. This mode of dealing, when the sale and purchase are
to and from the same person, has the effect, of course, of cancelling the contracts, leaving
only differences to be paid. When they are to different persons, it puts the defendant in a
position vicariously to perform his contracts. This is, no doubt, a highly speculative mode
of transacting business; but the contracts arc not wagering contracts, unless it be the
intention of both contracting parties at the time of entering into the contracts, neither to
call for nor give delivery from or to each other.

Dr. Tabrez Ahmad,

 There is no law against speculation, as there is against gambling. It may well be
that the defendant is a speculator who never intended to give delivery, and even
that the plaintiffs did not expect him to deliver; but that does not convert a
contract, otherwise innocent, into a wager. Speculation does not necessarily
involve a contract by way of wager, and to constitute such a contract a common
intention to wager is essential. It is in cases of the above description that there
is a danger of confounding speculation, or that which is properly described as
gambling, with agreements by way of wager; but the distinction in the legal
result is vital.
The Contract Act in section 30 provides that agreements by way of wager are
void; but that a transaction may fall within this provision of the law there must
be at least two parties, the agreement between them must be by way of wager,
and both sides must be parties to that wager.

Dr. Tabrez Ahmad,

 Oral evidence of agreement being by way of wager.---Though an agreement in writing may
ostensibly be for the purchase and sale of goods deliverable on a certain day, oral evidence is
admissible to prove that the intention of the parties was only to pay the difference, the burden of
proof, of course, being on the party who alleges that it was a wager. Such "intention" is a "fact" within
the meaning of S. 3 of the Evidence Act (see cl. 1, illustration (d), and it may be proved by oral
evidence under S. 92, proviso 1, of the same Act, as, if proved, it would invalidate the agreement under
the provisions of the section now under consideration. The same principle has been reiterated in
some cases. Thus in a Bombay case Jenkins C.J. said; "The law says that we must find, as best we can,
the true intention of the parties; we must not take them at their written word, but we must probe
among the surrounding circumstances to find out what they really meant.....We are not, and we must
not be, bound by the mere formal rectitude of the documents if in fact there lurks behind them the
common intention to wager, and parties cannot be allowed to obtain from the Courts any sanction for
their wagers merely because they use a form which is not a true expression of their common purpose
and intention. The surrounding circumstances and the position of the parities and the history of
dealings of this class are legitimate, though not .exclusive, matters for our investigation into the true
intention of the parties."

Dr. Tabrez Ahmad,

 ." In a still later case Davar J. said: "What the Court has to do is not simply to
look at the transactions as they appear on the face of them, but to go behind
and beyond them, and ascertain the true nature of the dealings between the
parties by probing into surrounding circumstances and minutely examining
the position of the parties and the general character of the business carried on
by them." In this class of suits it would be almost idle to expect to get at the
truth unless the Court takes the widest possible outlook consistent with the
provisions of the Contract Act; otherwise the result would be that the statute
could be violated with impunity by the simple and habitual device of cloaking
wagers in the guise of contracts. There can be no question of a wager, if a
substantial part of the goods has been delivered.

Dr. Tabrez Ahmad,

 To determine the general character of the plaintiff's business, the Court ought
to inquire how other contracts that may have been entered into by the plaintiff
with the same defendant, or even with third parties, and relating to the goods
in question, were previously performed by the plaintiff, whether by payment of
differences or by delivery of goods. Thus where it appeared that at the vaida for
which the contracts in question had been made the plaintiff had neither given
nor taken any delivery of any cotton, it was held that the evidence tendered by
the plaintiff to show that at other vaidas he had given and taken delivery of
cotton was admissible, and that the lower Court was wrong in excluding this
evidence. Upon the same principle, evidence is admissible to show that in the
case of a particular class of contracts, or of contracts relating to a particular
commodity, the normal course of dealing is to pay difference only.

Dr. Tabrez Ahmad,

 Promissory note for debt due on a wagering contract.---Agreements by
way of wager being void, no suit will lie on a promissory note for a debt due on
a wagering contract. Such a note must be regarded "as made without
consideration"; for "a contract which is itself null and void cannot be treated as
any consideration for a promissory note."
Suit to recover deposit.---The prohibition contained in this section as regards
the recovery of money deposited pending the event of a bet applies only to the
case of winners. The winner of a wager or a bet cannot sue to recover the
amount deposited by the loser with the stake-holder, but it is quite competent
to the loser to recover back his deposit before the stake-holder has paid it over
to the winner. In case, however, governed by the provisions of Bombay Act for
Avoiding of Wagers (Amendment) Act, 1865, even a loser cannot recover back
the deposit

Dr. Tabrez Ahmad,

Lotteries.---
 S. 294.A of the Indian Penal Code makes it penal to keep any office or place for the purpose of
drawing any lottery not authorised by Government or to publish 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.
Before the enactment of this section of the Code, lotteries not authorised by Government were
prohibited by the Private Lotteries Act, 1844. The Act declares all such lotteries "common and public
nuisances and against law." The Act was repealed by the Indian Penal Code Amendment Act, 1870,
and in its place S. 294-A was inserted in the Code (see S. 10 of the amending Act).
Where a particular association was authorised by the Government by a letter to hold a lottery, the
effect was that no prosecution would lie under the criminal law. But a sale or purchase of a ticket in
such a lottery would still be a wagering contract under this section as well as under the Bombay Act;
for the Government could not by a letter overrule the Central Act of the Acts of the Provincial
Legislature.

Dr. Tabrez Ahmad,

 What is a Lottery?---"Lotteries ordinarily understood are games of chance in
which the event of either gain or loss of the absolute right to a prize or prizes by
the person concerned is made wholly dependent upon the drawing or casting
of lots, and the necessary effect of which is to beget a spirit of speculation and
gaming that is often productive of serious evils." It was so stated in a Madras
case where an agreement was entered into between twenty persons whereby it
was provided that each should subscribe Rs. 200 by monthly installments of
Rs. 10, and that each in his turn, as determined by lot, should take the whole of
the subscriptions for one month. The defendant contributed Rs. 10 every
month for a period of ten months, and in the tenth month he got his lot of Rs.
200. Thereupon a bond was taken from him by the plaintiff, who was the agent
in the business, for the remaining Rs. 100 in order to ensure the furture regular
payment of monthly installments for the further period often months.

Dr. Tabrez Ahmad,

 In a suit upon the bond it was contended that the transaction was illegal as
being a lottery within the meaning of the Private Lotteries Act, 1844, and that
the suit therefore could not be maintained. It was held that the transaction did
not amount to a lottery. The Court said: "Here no such lottery appears to have
taken place: It is not the case of a few out of a number of subscribers obtaining
prizes by lot. By the arrangement all got a return of the amount of their
contribution. It is simply a loan of the common fund to each subscriber in turn,
and neither the right of the subscribers to the return of their contributions nor
to a loan of the fund is made a matter of risk or speculation. No loss appears to
be necessarily hazarded, nor any gain made a matter of chance." A "chit fund"
plan under which all subscribers are repaid their capital by "a fixed date,
though some determined by lot get more and sooner, is not a lottery.

Dr. Tabrez Ahmad,

 Default by Bank---Recovery of security by Bank---
Relationship between respondent Bank and appellant firm-
--One of agency---Respondent Bank under obligation to
present three bills of lading of foreign Bank before a
specified date alongwith Bill of Exchange---Bill of Lading
and Bill of Exchange being most integrated parts of same
transaction, failure to present full set of bills of lading
being immediate cause of non-payment of Bill of
Exchange, respondent Bank, held, marred security and not
entitled to any decree on basis of bills of exchange

Dr. Tabrez Ahmad,

Wagering Contract---
 Such contracts are void---No suit for recovery of money can be
brought on such contract. A wagering contract is one by which two
persons mutually agree that on determination of a future uncertain
event one shall win from the other and the other shall pay a sum of
money, there being no other real consideration for the making of such
contract. In cases of such contract the intention of the parties .is to be
determined as a question of fact. It is to be seen whether actual delivery
of the goods is contemplated or only the differences are required to be
paid. All contracts by way of gaming or wagering are void and no action
can be brought by the winner on a wager, either against the loser or the
stake-holder to recover what is alleged to be won.

Dr. Tabrez Ahmad,

Thanks we will continue…..

Dr. Tabrez Ahmad,

What is a wager?---
 A wager has been defined as a contract by A to pay money to B, on the
happening of a given event, in consideration of B paying [this should be
"promising to pay"] to him money on the event not happening. But Sir William
Anson's definition, "a promise to give money or money's worth upon the
determination or ascertainment of an uncertain event," is neater and more
accurate. To constitute a wager "the parties must contemplate the
determination of the uncertain event as the sole condition of their contract.
One may thus distinguish a genuine wager from a conditional promise or a
guarantee": Anson, Law of Contract, 17th ed. 221,222 (i). "But if one of the
parties has the event in his own hands, the transaction lacks an essential
ingredient of a wager". "It is of the essence of a wager that each side should
stand to win or lose according to the uncertain or unascertained event in
reference to which the chance or risk is taken."

Dr. Tabrez Ahmad,

Contracts with the Minor

Dr. Tabrez Ahmad,

Who are competent to contract
 Sec 11 of the Indian contract Act 1872. Who are
competent to contract –
 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.

Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
146 m,

Cont…
Thus, the section declares the following persons
are not competent to contract
 minors,
 persons of unsound mind
 persons disqualified by law to which they are
subject.
Age of majority: The age of majority is generally
eighteen years.
Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
147 m,

Cont..
 Sec. 3 of the Indian Majority Act, 1875 provides as
follows:
“Every person domiciled in India shall be deemed to
have attained his majority when he shall have
completed his age of eighteen years, and not
before.

Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
148 m,

Cont…
 Sec 10 requires that the parties to a contract must be competent
and sec 11 declares that a minor is not competent but neither
section makes it clear whether, whether if a minor enters into an
agreement, it would be voidable at the option or altogether void.
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.

Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
149 m,

Cont…
 Sec 10 and Sec 11 had, therefore, quite naturally given
rise to a controversy about the nature of minor’s
agreement.
 The controversy was only resolved in 1903 by the
judicial committee of the Privy Council in their well-
known pronouncement in Mohoribibi v Dharmodas
Ghose.

Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
150 m,

Mohoribibi v Dharmodas Ghose (1903) Privy
Council
 The plaintiff, a minor mortgaged his houses in favour of the
defendant a money lender, to secure a loan of Rs. 20,000/-.
A part of this amount was actually advanced to him. While
considering the proposed advance, the attorney, who was
acting for the money-lender, received information that the
plaintiff was still a minor. Subsequently the infant
commenced this action stating that he was under age when
he executed the mortgage and the same should, therefore,
be cancelled.
 The relief of cancellation had to be granted as the plaintiff
was entitled to it. .( Under sec 39 of the original Specific
relief Act 1877 courts were authorised to order cancellation
Dr. Tabrez
of void contracts. Now Sec. 31 of the Act of 1963). Ahmad,
Blog:
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olexindia.b
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151 m,

 The money lenders only request was that the relief
should be made subject to the condition of the
minor’s repaying him the sum of Rs. 10,500/-
advanced as a part of the consideration for the
mortgage.
 Sec. 64 and sec 65 of the Indian contract act 1872
and Sec 41 of the Specific Relief Act 1877 [ S. 33 of
1963] were in question.
 Arguments: Dr. Tabrez
Ahmad,
 Judgment: Blog:
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152 m,

Developments after Mohribibi case
 In its subsequent pronouncement in
Subramanyam v Subba Rao AIR 1948 PC 25.
the Privy council overruled earlier decisions and
entertained no doubt that it was within the powers
of the mother of a minor as a guardian to enter
into a contract of sale for the purpose of
discharging his fathers debts. Following this
decision the Orissa HC in the case of Durga
Dr. Tabrez
Thakurani v Chintamani, AIR 1982,158, held thatAhmad, Blog:
http://corp
olexindia.b
logspot.co
153 m,

Cont…
endowment of property for religious purposes by
guardians on behalf of minors, being within their
competence of was specifically enforceable.
The other High Courts have also expressed the view
that the doctrine of mutuality should not have
been imported into the matter where the contract
was within the competence of the guardian and
that there is no scope for this doctrine under sec.
20 of the Specific Relief Act 1963.
Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
154 m,

 In today's society it does not seem to be possible,
much less desirable for law to adhere to the categorical
declaration that a minors agreement is always “
absolutely void”.
 Minors are appearing in public life today more
frequently than even before.

Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
155 m,

Cont..
 The Privy council had therefore to modify its
earlier decisions.
 This trend is evidenced by the decision of their
Lordships in Srikakulam Subramanyam v Kurra
Subba Rao (1949) 75. Lord Morton held that Sec. 11
of the Indian Contarct Act 1872 and the Mohribibi
case leave no doubt that a minor can not contract
and that if the guardian and the mother had taken
no part in this transaction it would have been void.
The contract being for the benefit of the minor
and within the power of the guardian was held toTabrez
Dr.
Ahmad,

be binding upon him. Blog:
http://corp
olexindia.b
logspot.co
156 m,

Effects of minor’s agreement
 No Estoppel against minor
 No liability in Contract or in Tort arising out of
Contract: If the tort is directly connected with the
contract and is the means of effecting it and is a
parcel of the same transaction, the minor is not
liable in tort.
 Doctrine of Restitution: If an infant obtains
property or goods by misrepresenting his age, he
can be compelled to restore it, but only so long as
the same is traceable in his possession. This is Dr. Tabrez
known as equitable doctrine of possession. Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
157 m,

Cont…
Again the doctrine of restitution is not applied where the
infant has obtained cash instead of goods. The well known
authority is
Leslie (R) Ltd. V Sheill (1914) 3 K.B
An infant succeeded in deceiving some money-lenders by
telling them a lie about his age, and so got them to lend
him 400 pound on the faith of his being an adult.
Their attempt to recover the amount of principal and interest
as damages for fraud failed.
The attempt also failed under quasi-contract and doctrine of
restitution.
Rejecting the contention, lord Sumner said: I think this
would be nothing but enforcing a void contract. Dr. Tabrez
Ahmad,
Blog:
http://corp
olexindia.b
logspot.co
158 m,

Contract laws

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