CONTRACT LAW I

Essentials of a Valid Offer

- INTENTION to do or abstain from doing something and with a view to obtain the
assent of the other party- “contractual obligations” – Balfour v. Balfour
- Intention is to be determined from the terms of the agreement and the surrounding
circumstances.
- BALFOUR v. BALFOUR: Appeal from the judgement of Justice Sargant who said
that there existed a valid contract between the husband and wife where the acceptance
of the wife was the supposed consideration.
The husband appealed to the decision in the court of appeal. Lord Atkin decided that
there was no concluded contract between the two parties as there was no intention to
enter into legal obligations. The agreement between parties while they were
temporarily staying apart does not give rise to contractual obligations. Further there
was no consideration for the promise by the wife. The agreement was termed as
purely domestic agreement.
The counsel for the respondent pleaded that when the husband and wife are mutually
separated, the husband is bound to pay the wife the sum agreed as maintenance. The
pleading was rejected as this was not a case of matrimonial separation.
- MERRITT V. MERRITT: Appeal from the decision of J. stamp who held that there
exists a valid contract between the husband and wife.
In the court of appeal, Lord denning and other justices held that there was a contract
concluded between the husband and wife as there was intention to enter into legal
obligations evident from the fact that they had separated. Therefore the principle of
Balfour v. Balfour does not apply. The appellant argued that there was no
consideration from the wife, but in fact the wife had agreed to pay the mortgage
remittances using the monthly payment of 40 euros and partly from her own money.
- GOULD V. GOULD: Husband and wife decided to live separately, the husband
offered to pay 15 pounds per week till he is able to. The husband failed to pay the
amount. Wife sued and the contract was said to be a concluded contract. The husband
appealed which was allowed. It was decided that even when there was a written
 agreement, consideration and they were lively separately, the intention to enter into
legal obligations was absent as evident from the uncertain terms.
- Terms should be clear and certain
- Communication (explicit or implicit) – Lalman Shukla V. Gauri Dutt ( there has to be
communication of the offer itself for the acceptance to take place)

Essentials of a valid acceptance

- Absolute and unqualified
- Communication – also in the prescribed form if any by the offeror
- Acceptance should be made to the offeror or his/her authorised agent.
- The acceptance should be made only till when it is subsisting.
- Usual and reasonable time

Invitation to Offer and Offer

- Making of an offer is the expression of the final willingness of the offeror to enter into
a contract and with a view to obtain the assent of other person.
- While the invitation to offer is not the expression of final willingness but in fact just a
way of expressing that one is willing to invite offers and further negotiate.
- Harvey v. Facey- bumper hall pen case- only quoted the price and there was no
communication of his final willingness to sell the pen. Answered only one of the two
questions.
- Col. D.I Macpherson v. M.N Apanna – the plaintiff made an offer to buy the
defendant’s lodge for 6000Rs. He wrote to the defendant’s agent asking if his offer
has been accepted and he was ready to give another price if found reasonable. The
defendant’s agent wrote, ‘will not accept anything less than Rs. 10,000. The plaintiff
accepted to pay the amount. Later defendant refused to sell. Could do that as the
defendant merely made an invitation to offer and was inviting offers for negotiation.
- Bus stand example – the offer is made by the bus driver or the conductor which is
accepted by the passengers when they board and pay for the ticket. (important)

Communication of acceptance and the place of contract

- Bhagwandas Goverdhandas Kedia v. Girdgarilal Purshottam Das: Kedia (Khamgaon)
had to supply cotton seed cake to M/S Girdharilal Purshottam (Ahmedabad). The
acceptance was received at Ahmedabad and thus the place of contract is Ahmedabad
 according to the majority opinion. M/s Girdharilal contends that contract is complete
at the place where the acceptance is intimated to i.e the place where the intimation is
received. While on the other hand, the defendant contend that section 3 and 4,
ICA,1872 should be universally applicable and principles propounded in England are
not relevant.
- In case of telephone or telex, it is established that it is an instantaneous mode of
communication because there is absence of control by an external agency, further J.C
Shah said that the law makers did not anticipate the invention of telephone as a means
of communication
- Adams v. Lindsell – The postal rule was propounded in this case. The offer to sell
some goods was made, acceptance was made via post. Till the proposer received the
letter, the goods were already sold to a third person.
- Entores Ltd. V. Miles Far East Corporation – in case of instantaneous mode of
communication, the contract is concluded at the place where the acceptance is
received by the offeror. Offer made from London now made is that in case of
telephonic conversation, acceptance is made when it is received by the offeror and the
place of contract is the place where it is received.
- J. Hidayatullah: Focussed on the literal interpretation of the Indian Contract Act,
1872.He decided that S.3 and 4 should be universally applicable irrespective of how
quick the transmission is. Khamgaon should have the jurisdiction.
-
When do agreements become contracts?
- Free consent
- Parties competent to contract
- Lawful consideration
- Lawful object
- Not hereby expressly declared to be void.

Difference between lawful object and lawful consideration

- Lawful consideration would mean to do or abstain from doing something at the desire
of the promisor, so in exchange of legal services if one is paid in cash it is lawful
consideration
 - Lawful object would mean that the purpose behind entering the contract and the act
essential to the contract is itself lawful. Therefore giving cash to kill another person
will not be termed as lawful object but a lawful consideration.

Express and Implied offers

- An offer which is expressed by conduct is known as implied offer while an offer
expressed by words, spoken or written is known as express offer.
- Similarly for the acceptance.
- S.9 defines express and implied promises.
- Implied offer- case law- Upton-on-Severn RDC v Powell( fire brigade called, area
turned out to be out of the free service zone of Upton, the act that he called for the
services of Upton implied that he intended to pay for their services too )

Standard form of contract

- Necessity? Unreasonable
- Giving reasonable notice – S. 3, Indian Contract Act, 1872
- Terms should be reasonable

Battle of forms in commercial contracts

Q- Law of contract can vary according to the nature of economy? – Extent of freedom of
contract

CONSIDERATION
- Intention can be implied from consideration
Essentials of Consideration
- “At the desire of the promisor”- intention to enter into contractual obligations and to
obtain the assent of the other party???- Durga Prasad v. Baldeo
- Kedarnath v. Gourie Mohamed (1866)-Cal HC - town hall construction- breach of
promise- consideration – when at the desire of the promisor, the promise does
something, it amounts to consideration. (one subscriber backed out and did not
contribute the 100 RS. He had promised to pay for the town hall construction)- Indian
law is different from the English common law – Hudson case. Gratuitous promises are
enforceable.
 - Flow from promise to promisor- demand from the promisor which shall be
expressed. (Implies that voluntary act/ statutory duty/ not a social obligation/ tortious
obligation/out of natural love and affection)
- Commission or abstinence of an act (consideration may be executed or executionary)
- Lawful
- The act or abstinence shall be done by the promise or any other person (designation
of this person?) – trust, family.

“AT THE DESIRE OF THE PROMISOR”

Promissory Estoppel- related to consideration-subscription cases- “in light of justice and
equity”- relying on the promise, when someone starts acting on it and alters one’s position, it
will be case a promissory estoppel- as there in an alteration in the person’s position on the
basis of the promise which was made.
- Durga Prasad v. Baldeo (also agreement without consideration)
The plaintiff, on the order of the Collector of a town, built at his own expense, certain
shops in a bazaar named Hume Ganj. The shops were occupied by the defendants who
in consideration of the plaintiff’s money expended to make the bazaar, promised to
pay him a commission on articles sold through their agency in the bazaar. The
plaintiff’s action to recover the amount was dismissed because his act of expending
money for the construction of the bazar was not at the desire of the promise
(defendant) in the case. the act was a result of the collector’s order.

- Motilal Padampat Sugar mills v. State of UP

In this case the Chief Secretary of the Government gave a categorical assurance that
total exemption from sales tax would be given for three years to all new industrial
units in order them to establish themselves firmly. Acting on this assurance the
appellant sugar mills set up a hydrogenation plant by raising a huge loan.
Subsequently, the Government changed its policy and announced that sales tax
exemption will be given at varying rates over three years. The appellant contended
that they set up the plant and raised huge loans only due to the assurance given by the
Government. The Supreme Court held that the Government was bound by its promise
and was liable to exempt the appellants from sales tax for a period of three years
 commencing from the date of production. No reasonable notice or opportunity was
also given
It was also held that the government would not be liable provided it can show that
equity lies in its favour. Doctrine of privity is a principle evolved through equity
The ingredients for the application of the doctrine are:
• That there was a representation or promise in regard to something to be done in the
future,
• That the representation or promise was intended to affect the legal relationship of
the parties and to be acted upon accordingly, and,
• That it is, one on which, the other side has, in fact, acted to its prejudice.

- Doraiswami Iyer v. Arunachala Ayyar

Temple – subscriptions – for repairs- different position from Kedarnath v. Gourie
Mohammad as their the contract was that in exchange of you building the temple, I
shall pay you as a subscriber- in this case, cannot establish if there was any request
made by the subscribers when their names were added to the list- held bare promise
unsupported by consideration.

PRIVITY OF CONTRACT
Doctrine of Privity of Contract has admitted certain common law principles and statutory
exceptions. Privity of contract states that no third party can sue parties to a contract even
when it is does for the benefit of the third person.

The English law related to privity of contract was first laid down in Twedle v. Atkinson and
reaffirmed in Dunlop Pneumatic Tyres Co. v. Selfridge which stated that no stranger to the
contract has the right to sue even when the whole point of the contract is to benefit the
stranger.
In Indian law, there has been a conflict of opinion with regards to the same. In some cases on
the basis of the interpretation of S.2(d), the doctrine of privity was not held to be applied,
while in prepondering cases like Pramila Bala and Jamnadas v.Ram Avatar, the court strictly
applied the doctrine of privity. And it was held that indian law also accepts the doctrine of
privity on the basis of the interpretation of definitions of the promisor and promisee which
excludes any right for the third party.
The English law also identifies exceptions to this doctrine of privity
- When the contract implies a trust in favour of the third party
- Where money to be paid in the contract is charged on some immovable property.
- Cases of marriage settlement or compromise of doubtful rights as introduced by
Special relief act.

- Krishna Lal Sandhu v. Pramila Bala AIR 1928 Cal 518 – doctrine prevails with
exceptions .It was held that an obligation in equity amounts to trust in favour of
nominee, privity of contract can be breached. Otherwise, no third party intervention.
Behari Lal Sircar insured his life for Rs. 500 issued by the Hindusthan Co-operative
Insurance Society. The society assured that upon the death of insured, the society
shall pay to Pramila Dassi. The plaintiff’s claim to the money was disregarded which
resulted in the suit.
The court of first instance held that the insurance money became the property of the
plaintiff on the death of deceased and did not form part of the assets of the estate left
by him.
The plaintiff contented that the Married Women’s Property Act of 1874 applies and
thus creates trust in the favour of the plaintiff.
According to the English law, no third person can sue in a contract. There are two
exceptions to this. One, trust is created in favour of the third party. And second is the
case of a children in the marriage settlement where persons in contemplation of a
marriage make a settlement by way of contract only for the benefit of children of the
marriage.
But this court reversed the judgement of the court of first instance and the lower
appellate court and stated that no trust was created in favour of the plaintiff, Married
Women’s property act of 1874 is not applicable and thus the insured money formed
part of the assets of the estate left by the deceased.

- Dunlop Pneumatic Tyres & co. v. Selfridge &Co. (1915) AC 847

Dunlop tyres was a tyre manufacturer and entered into a contract with their dealer to
not sell their goods below the RRP. As part of the agreement, Dunlop also required
their dealers to gain the same agreement with their retailers, who in this instance was
Selfridge. The agreement held that if tires were sold below the RRP, they would be
required to pay £5 per tire in damages to Dunlop. This was agreed between the dealer
 and Selfridges, which effectively made Dunlop a third-party to that agreement.
Sometime after this, Selfridge sold the tires below the agreed price and Dunlop sued
for damages and an injunction to prevent them from continuing this activity. At the
initial trial, the decision was given to Dunlop. This was appealed by Selfridge and the
decision was reversed. Dunlop appealed.

The issue was whether Dunlop had access to contractual damages without being a
party to the contract?
Dew was not acting as an agent of Dunlop and thus not under exception. D
The court held that Dunlop was not a party to the contract, doctrine of privity applies
and also that there was no flow of consideration from Dunlop to Selfridge.

- MC Chacko v. State Bank Of Travancore (1969) 2 SCC 343- Privity of contract

It was held that kottayam bank is not a party to the contract and has not even declared
itself as the beneficiary, thus cannot sue.
The Supreme Court has by its decision in M.C. Chacko v State of Travancore [7]
expressed itself in favour of the rule in Tweedle v Atkinson thus clearing the
ambiguities in the application of the doctrine of Privity of Contract.

There are two aspects of this doctrine. Firstly, no one but the parties to the contract
are entitled under it. Rights or benefits may be conferred upon a third party but such a
third party can neither sue under the contract nor rely on defenses based on the
contract. The second aspect is that the parties to a contract cannot impose liabilities on
a third party.

STATUTORY EXCEPTIONS
- S. 15, Specific relief act- exceptions to doctrine of privity- who may obtain specific
performance
- Statutory exceptions in Negotiable Instruments Act

COMMON LAW
- Beneficiary to subject matter- third party
- Family arrangement
- Covenants related to land
 - Acknowledgment of liability towards third person

CONSIDERATION
- Nawab Khawaja Mohammad Khan v. Nawab Hussaini Begum (1910) 12 Bom
LR 638
The plaintiff, namely Husaini Begum married the son of defendant, Khwaja
Mohammad Khan. The plaintiff was promised to be given Rs. 500 as Kharch-i-
pandan. The agreement was executed at the tiem of marriage, before the parties were
major. After 13 years of them beiong together, the plaintiff abandoned her husband’s
home. The husband never brought an action for restitution of conjugal rights. Plaintiff
sued for the recuperation of Kharch-i-pandan.
The plaintiff was not a party to the contract but still could sue the defendant because
she was closely related to the native ruler of Rampur. This agreement lies within the
exception.
- 13th Law commission report
- In a multi- partite contract, sometimes there is no clarity as to who is the promisee and
who is the promisor
- Rights can be created for other people in cases, promise and promisor is determined
by where the consideration moves from whom to whom.
- Executed and executory consideration
- Executory consideration is a consideration which has not yet need performed
- Union of India v. Chaman lal AIR 1957 SC 652- case related to act and abstinence

- S. 25 (explanation 2) – inadequacy of consideration- relevance

- ABSTINECNE
SECTION 25-
- Sub clause 3- law of limitations, Can law of contract supersede the Law of
limitations?
- Food Corporation of India v. Surana Commercial and Co.
- Sm. Rajlukhy Dabee v. Bhootnath Mukherjee
An agreement was entered between the husband and the wife where the husband
provided for a separate residence and maintenance. the agreement referred to a mutual
disagreement of mind between the two parties. It was held that this was a voluntary
agreement where no consideration moved from the wife to the husband. Also she had
 no claim for a maintenance as it has been held in a precedent that if a wife leaves the
house due to ordinary quarrels and there is no violence as in this case, no claim for
maintenance shall be entertained. No consideration- no valid contract. Nearness of
relation alone does not necessarily imply natural love and affection.

SECTION 12- SOUND MIND FOR PURPOSE OF CONTRACTING hn

- Determination of who is of sound mind- whether the person is capable of
understanding it and forming a rational judgement as to its effect on his interests,
- Insanity- a mental medical condition, and not circumstantial
- Chacko and another v. Mahadevan
Chacko had 20 cents of land of which he sent one cent of land for Rs. 18000. Then a
few months later, he sold 3 cents of land to Mahadevan for Rs. 1000. Later Chacko
and his wife filed a suit challenging the agreement on the grounds that it was made
under the impression of fraud which makes it null and void. In the fact findings of the
first appellate court, it has been established that he was not of sound mind when this
agreement was made as he was in the hospital for alcoholic psychosis. Further it is
material that while he sold one cent for 18000, no man of sound mind would sell 3
cents for 1000 rupees. Therefore Chacko was held to be of unsound mind when he
entered into this agreement.
S.25 explanation 2
- Sonalal Bora v. Jyotindra Bhattacharjee
The court held that the proof of unsoundness of mind shall not be given medically but
also through conduct.
The burden of proof lies first on the person filing a plea for unsoundness of mind,
once proved even by balance of probabilities, the onus shifts on the other party to
show that there was a rational explanation to the conduct.
Bhagirath Bora who transferred his home property in the name of plaintiff. The wife
and sons of Mr. Bora contented that he was of unsound mind as evident from his
erroneous conduct of instating criminal proceedings against his own family members,
he was thus held to be of unsound mind while entering into the agreement.
 MAJORITY AS A REQUIREMENT (SECTION 11)
- Age of majority act- person who is domicile of India attains majority when turns 18.
- In the case were the guardian or a custodian is appointed by any court of justice for a
minor in case of a person or his property or for both before the age of 18 years, then in
such a case the age of majority would be after attaining the age of 21 years instead of
attaining 18 years of age.
- English law considered minor contracts as voidable- and Indian law is based on
English law, controversy whether it should be void or voidable.-culminated in
MOHORI BIBEE AND ORS. V. DHURMODAS GHOSE
- Minor’s contract in India is void as laid down in Mohori Bibee
- Equity at times calls for liabilities for parties to follow certain obligations under the
contract.
- Is Mohori Bibee law unfair to the minors?
- Facts: a minor, owner of some property by inheritance, he wanted some amount of
20,000 and thus contacted a lawyer to get that money on mortgage. Deed concluded
by the lawyer as he found the person willing to give money. Minor attempted to
escape from all form of liabilities i.e. did not wish to give money and the property
both, wanted to get the deed cancelled.
- Contentions by the plaintiff – contract with a minor is voidable, not void. s.64, 65,
ICA, 1872 and S. 38, 41, Specific Relief Act. The court believed that the application
of these provisions requires the formation of the contract, so in case of void contracts
these provisions will not stand.
- S.115, Indian Evidence Act- ESTOPPEL – the minor represented himself as major.
CAN THE CONTRACT BE ENDERED VALID ON THE BASIS OF THE FACT
THAT THE MINOR MISREPRESENTED HIMSELF AS A MAJOR? CAN THE
MINOR BE ESTOPPED ON THE BASIS OF S.115, Indian Evidence Act?
- Can a minor plead infacy to escape contractual obligations? Can minor be estopped
from pleading infacy – the answer is no, liability cannot be imposed on minor when
the law does not allow minors to enter into contract.
- Kedarnath, the lawyer for the plaintiff and who conducted the intial deed. It was
proved that Kedarnath was aware of the minority of the person. Thus, equity is not in
their favour and thus S. 64,65 and S. 41 would not be applied
- Equitable remedies are discretionary remedies whereas legal remedies are provided by
law itself.
- CAN MINOR EVER BE A TRANSFEREE? – THE MAJOR SUBSEQUENT
QUESTION OF MOHORI BIBEE
- Child artists- contracts –
- After mohori bibee- the contract with a minor is void but subsequent judgements held
that there are exceptions to the same so as to ensure that minors can sue, especially to
enforce privity of contract.
- K. Balakrishnan v. K. Kamalam AIR 2004 SC 1257
- Mathai Mathai v. joseph mary
- Situations where Mohori Bibee will not be beneficial for minors?
1. Contracts of services by minors- where minor have to enter into contracts like
child artists
2. Cases where minor is a receiver of a gift or property
3. Cases where the minor has already given the consideration ( executory
consideration)
4. Cases where the minor is the mortgagee or the mortgagor.- Raghavan case
5. Cases where there the minor is a mere beneficiary to the contract
6. Cases of contracts for necessaries (Nash v. Inman 1908 KB 1)
- DOCTRINE OF RESTITUTION
1. S. 68- talks about reimbursement from the property of the incapable person- for
necessaries alone (suited to conditions of life)
2. This limits liability od minor in 2 imp ways- minor is not personally liable
3. Ajudhia Prasad v. chandanlal( objective is to protect the minor, favoured Leslie v.
shell) 1937 ILR 860- says if we allow S. 115 that would mean minor agreements
and valid contracts but that is not the case., Leslie v shell (giving a decree), lakha
singh v. Khan Gul (the minor should give back the received benefit) (Lahore HC)
4. CONTROVERSY WITH REGARDS TO S. 68 -
- DOCTRINE OF ESTOPPEL
- CONCEPT OF RATIFICATION
- Does s. 33 of SRA embody or uphold the approach taken by the Allahabad HC in
Ajudhia Prasad?
 SECTION 13- CONSENT DEFINED- related to the existence of the contract.
- Parties should agree upon the same thing in the same sense.
- If the parties do not agree on the same thing in the same sense- no contract existed.
- But if this mistake as to understanding the object of the contract is caused by the fault
of the other party, it may not invalidate the consent. For example – case of a sale by
sample where the vendor by mistake shows a wrong sample, it was held that the
contract was not avoided by this error of the vendor.
- ‘same thing’ relates to the object of the contract.
- DIFFERENCE BETWEEN MUTUAL MISTAKE AND COMMON MISTAKE
- MUTUAL MISTAKE- no consensus ad idem, parties misunderstand each other and
are at cross-purposes, no agreement at all, this contract is void ab initio.
- COMMON MISTAKE- parties are ad idem, a mistake which is shared alike by both
the parties, section-20, for example- the subject matter of the contract has perished
and none of the parties are aware of it. Renders a contract void.
- In case of UNILATERAL mistake – the contract is voidable at the option of the psrty
mistaken under s.18(3)
- Real consent is essential to the formation of the contract- situations where the real
consent is absent include;-
- Offer and acceptance do not coincide
- Mistake as to the identity of the person contracted with.
- Mistake as to the nature of transaction- Non est Factum- the defendant was
mistaken about the character of the agreement when signing it.

SECTION 14 (FREE CONSENT DEFINED)

- free consent is required by s. 10, consent but not free causes the contract voidable,
generally.
- Mutual mistake- void
- ‘caused the consent’- even if there is undue influence or coercion, but if it does not
appear that it was instrumental in making the promisor to do the act in question, the
existence of coercion etc. would be of no avail, has to be the proximate and
immediate cause of that effect
 SECTION 15 (COERCION)
- INGREDIENTS
- Committing or threatening to commit an act forbidden by IPC
- Or unlawful detaining or threatening to detain property
- “prejudice of any other person”
- With the intention to have the other person enter the agreement
- It is wide in its scope- includes unlawful detention of property, may be committed by
any person not necessarily party to the contract, may be directed against any person.

SECTION 16 ( UNDUE INFLUENCE)

- INGREDIENTS- One of the parties is in a position to dominate the will of another,
intention to get unfair advantage, relationship “subsisting” between the parties i.e
during the period under consideration.
- Raghunath Prasad v Sarju Prasad AIR 1923 PC 279
- Unconscionability is in itself not enough to render a contract void or voidable
- 16(3) –the plaintiff is required to prove that the defendant is in a position to dominate
the will and it is unconscionable – shifts the burden on the defendant
- The person influenced is constrained to do against his will that, which , but for the
influence he would have refused to do if left to exercise his own judgement. (test)
- Based on the doctrine of equity – “influence is acquired and abused and confidence is
repose”
- This doctrine as a defence applies to gifts as well as to transactions in the form of
contract.
- SECTION 16(1) – Two things have to be determined- are the relations between the
two parties such that one is in a position to dominate the will of other and that has the
party in such a position used his position to obtain unfair advantage over other.
- Dominating relationship- which develop a dominating influence, need not
necessarily be related by blood, marriage or adoption. – that generates a dominating
position for one,
- USE OF THE POSITION- the dominating position must be used too.
- UNFAIR ADVANTAGE – bargain is in favour of the influencer and unfair to other.
- Therefore it is essential to establish that the promise was in a position to dominate the
will of another, he used that position and that position got the promise unfair
advantage.
- SECTION 16(2)
- REAL AND APPARENT AUTHORITY- apparent authority is where real
authority does not exist but the person is able to approach the other with show
of authority.
- FIDUCIARY RELATIONSHIP- based on trust or where the position naturally
reposes confidence. Parent and child, but no presumption of undue influence
of an adult child over his aged parents- can be established on facts though.
Relationship between husband and wife- there is no presumption of undue
influence as the dominating position is uncertain but can be established as
there is a recognised tenderness of treatment and trust.
- MENTAL CAPACITY IS AFFECTED – mere state of mental capacity being
affected does not give rise to presumption of undue influence, unless the
opposite party has taken the opportunity to gain unfair advantage. (mental
distress, old age, young age)
- Cases where parties take advantage of economic power etc- there is undue
influence only when there is inequality of bargaining power such as to the
merit the intervention of the court and not a result of ordinary interplay of
economic forces (illustration-D)
- SECTION 16(3)
- For the burden of proof to be shifted- two factors need to be proved- that a
person was in a position to dominate the will of other and that the transaction
appears on the face of it or on the evidence adduced to be unconscionable.
- The purpose is to give the person a chance to justify his position.
- An unconscionable bargain is such an agreement as no sane man, not under a
delusion, would make and no honest man would take advantage of.
- RAGHUNATH PRASAD V. SARJU PRASAD- the relationship between a
lender and borrower is not necessarily dominating by one party. Even when
the bargain is unconscionable, it is essential to establish that one of the parties
were in a dominating position to get an unfair advantage. It was held that no
dominating position existed between the lender and borrower even when
unconscionable bargain.
 SECTION 17 (FRAUD)
- Difference between fraud and misrepresentation – in both cases a misstatement of
fact which misleads the promisor, but in case of misrepresentation, the person
believes it to be true and in fraud, he knows that suggestion as to the fact is not true.
( falsehood and not falsehood )
- CLAUSE 1- there should be suggestion as to the fact, the fact suggested should not be
true, should be made by person who does not believe It to be true, with an intention to
deceive or induce
- “who does not believe it to be true”- there is false representation when done
knowingly, or without belief in its truth, recklessly careless whether it is true or false.
- PROOF OF ABSENCE OF ACTUAL AND HONEST BELIEF IS ALL REQUIRED
TO SATISFY EXISTENCE OF FRAUD
- CLAUSE 2- “Active concealment” – mere non-disclosure of some immaterial facts
does not constitute it.
- CLAUSE 3- has to be shown that the promisor had no intention of making the
promise while making it, and any subsequent conduct or representation is not
considered for this purpose.
- CLAUSE 4 – “Any other act fitted to deceive”
- CLAUSE 5 – cases where disclosure of certain kinds of facts is expressly required by
law, and thus expressly declared to be fraud
- SILENCE AS FRAUD - mere silence not fraud unless
- There is duty to speak- the principle is that every duty does
not have a duty to disclose based on the reasoning that each
party is expected to obtain some necessary information on
their own, and not rely on the other party for everything.
- Or, it is equivalent to speech
- Burden of proof lies on the party alleging fraud. Again, the burden of proving silence
in some circumstances amounts to fraud lies on the party alleging it,

- INGREDIENTS OF FRAUD
- there should be suggestion as to attract
 - The fact suggested should not be true.
- The suggestion should be made by a person who does not believe it to be true.
- The suggestion should be made with intent either to deceive or to induce the
other party to enter into contract.
- Representing belief as truth amounts to misrepresentation- without intention,
- 17(1) – the person should know that the statement is untrue.
- 17(2) – “active concealment” – the times when I am duty bound to speak but does not,
and even when silence communicates something.
- 17(4) – any act fitted to deceive – along with initial essentials
- EXPLANATION – where there is a duty needs to be identified, is related to what
constitutes an active concealment
- It is settled that where a person on whom fraud is committed is in a position to
discover the truth by due diligence, fraud is not proved.1

- SECTION 18- MISREPRESENTATION

- “Believes it to be true.”
- Without an intention to deceive
- Causing a party to an agreement to make a mistake as to the substance of the contract
– innocently

SECTION 23
- Imposes restriction on the absolute freedom of a person to contract as it becomes
subject to the overriding considerations of public policy
- Section 23 is confined to the object of the transaction or consideration and not to the
reason or motive that prompted it.
- FORBIDDEN BY LAW
- Prohibiting any statute, enactment of the legislature or a principle of unwritten
law
- Gherulal parakh states in India, acts punishable by IPC, acts prohibited by
special legislation or oders by authorities deriving authority from the legislature
would come under forbidden by law
- ‘FORBIDDEN BY LAW’ AND ‘VOID’

1
Sri krishan v The kurukshetra University
 - Whatever is declared as void is not necessarily forbidden by law or illegal –
wager agreements have been expressly made void and thus not forbidden by law
under s. 23
- Being void, primarily makes it unenforceable i.e. no remedy can be sought in
case of non-performance of agreement by either of the parties.
- DEFEAT THE PROVISION OF LAW – limits to the extent that it defeats the
intention which the legislature had expressed or implied, intention of the parties to
defeat the provision of law is essential
- IMMORAL OR OPPOSED TO PUBLIC POLICY
- Definition of what constitutes ‘immoral’ accepted in Gherulal Parakh- conduct
or purposes which the state, though disapproving them, is unable, or not
advised, to visit with direct punishment
- Gherulal Parikh - Both the terms ‘immoral’ and ‘public policy’ are branches of
common law and are therefore confined to the principles recognised and settled
by courts. The terms ‘what is regarded by the court’ is to be regarded on the
basis of these principles alone, the courts need to expound the law and not
expand it.
- Immorality is to include sexual immorality as have been dealt by the courts- on
this basis wagering agreements were not held to be immoral under s. 23 in
gherulal parakh case.
- PUBLIC POLICY – Courts are expected to exercise extreme reserve in holding
a contract as void for being against public policy, only in cases where harm to
the public is substantially incontestable.
- Fender v. St. John Mildway, Egerton v. Brownlow - Lord Atkin describes
that something done contrary to public policy is a harmful thing; but the
doctrine is extended not only to harmful cases; but also to harmful tendencies.
- The doctrine of public policy it is governed by precedents. The principles have
crystallised under different heads. though the heads are not closed and though
theoretically, it may be permissible to evolve a new head under exceptional
circumstances of the changing world, it is advisable in interest of stability of
society not to make attempt to discover new heads in these days
- The judge is not free to speculate upon what is cosndiered as opposed to public
policy, should be based on principles laid down in previous decisions
- GHERULAL PARAKH V. MAHADEODAS MAIYA -
 - The question is that of legality of partnership to carry on business in wagering
agreements
- FACTS- Plaintiff and defendant entered into Partnership agreement with
object of entering into wagering transactions with obligation to bear equal loss
or profit arising out of such partnership. When plaintiff asked for
reimbursement of half of money paid by him to discharge losses of
partnership, defendant alleged that the agreement made between them was
illegal and unenforceable on account of S.23

- CENTRAL INLAND V. BROJO NATH GANGULY

- Plaintiffs worked in a company which was dissolved by Court’s order and they
were then inducted into defendant Corporation upon latter’s T&C. After years
of serving Corporation, plaintiffs were arbitrarily kicked out of the
Corporation by virtue of Rule 9(i) of said T&C which provided for termination
of employees’ services on three months’ notice on either side upon which
three months’ salary to be paid by Corporation. Plaintiffs requested Court to
quash Rule 9(i) on grounds of unconscionability.
- ISSUE: Whether an unconscionable term can be held to be void/ voidable
under Indian Contract Act (ICA)?
- Freedom of contract is of little value when parties don’t stand on equal
footing; party with weaker bargaining power enjoys no realistic opportunity to
bargain and party has no alternative between accepting a set of terms proposed
by other or doing without the goods or services offered.
- Unconscionable agreements - Only when there is gross inequality of
bargaining power compounded with terms unreasonably favourable to stronger
party can the indication that weaker party had no meaningful choice except to
consent to the unfair and unreasonable terms, hold ground.
- There is gross inequality of bargaining power and the party does not have any
meaningful choice – two considerations by which court strikes the agreement
under s.23- opposed to public policy as they affect large section of public
(adhesion contracts)
- Rule 9(i) was unreasonable and unfair to the extent of being unconscionable
for it gave arbitrary and absolute power to the Corporation to dismiss its
employees without providing any guidelines to that effect. The rule was
 also violation of principle of natural justice-audi alteram partem-for it neither
provided for any inquiry to take place nor did it provide for any opportunity to
accused employee to be heard.

SECTION 27, AGREEMENTS IN RESTRAINT OF TRADE ARE VOID

- Relationship between S.27 and Art. 19, Indian Constitution – article 19 guarantees
freedom of trade and in furtherance of the same, S.19 provides that such agreements
are void. S.27 is a concrete expression of Art. 19
- Can law of contract be seen as threat to freedom of trade? –
- Can freedom of contract be used to prevent competition? –
- Mere restraint will not be violation of article 19, the kind of restraint- unreasonable
and absolute restraint.
- WHAT IS UNREASONABLE RESTRAINT?
- S.26 onwards is a restriction on a person’s freedom of contract
- An attempt to balance freedom of contract with freedom of trade
- NIRANJAN SHANKAR GOLIKARI V. CENTURY SPINNING AND
MANUFACTURING CO. LTD.
- The appellant was aware of the technical know-how, secrets, techniques and
information related to the manufacture of tyre corn yarn
- The inhibitions contained in clause 9 and 17 are not blanket restrictions, only
invoked in matters of business( employee leaving abandoning, resigning his
service during the term of and in breach of such agreement)
- Clause 17 is a reasonable restriction to protect the interests of the respondent –
restraint was applicable during the term of employment. Existence of a negative
covenant in a service agreement made the agreement void on the ground that it
was in restraint of trade and contrary to S.27 of ICA, 1872.
- No indication that if the appellant was prevented from being employed in a
similar capacity elsewhere he would be forced to idleness or that such a restraint
would compel him to go back to the company
- ONUS- in case of challenge on grounds of restraint of trade, the onus is on the
party supporting the contract to show that the restraint is reasonable, then the
onus shifts to party attacking the contract to prove that restraint is nevertheless
injurious to public.
 - Injunction to restrain him from divulging any and all information etc.

- S.28, AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS

- Jurisdiction of court is ‘ousted’ by our contract
- Law of limitation prescribed time limit cannot be reduced and legal proceedings
- Jurisdiction clauses i.e. choice of jurisdiction is not hit by s. 28

- S.29, AGREEMENTS VOID FOR UNCERTAINITY

- “Capable of being made certain”- to be decided on the basis of the terms of the
contract, not by the court
- S.29 of the ICA should not give courts too much of power to interpret, has to read
between the lines.