LAW OF CONTRACTS NOTES
Section 27
Agreement in restraint of trade, void. —Every agreement by which any one is restrained from exercising a
lawful profession, trade or business of any kind, is to that extent void.
Exception 1.—Saving of agreement not to carry on business of which good-will is sold.—One who sells the
good-will of a business may agree with the buyer to refrain from carrying on a similar business, within
specified local limits, so long as the buyer, or any person deriving title to the good-will from him, carries on
a like business therein, provided that such limits appear to the Court reasonable, regard being had to the
nature of the business. [GOOD-WILL].
Case Laws
Madhub Chunder v. Rajcoomar Das
1st case where the concept of ‘restraint to trade was discussed’.
Facts of the case
The plaintiff and defendant, in this case, were both running the same business in Calcutta’s same locality.
Since the defendant had experienced a loss, he suggested the plaintiff close his firm in exchange for a
particular sum of money. The plaintiff filed a lawsuit against the defendant after the defendant failed to pay
the agreed-upon sum.
Issues involved in the case
Whether the agreement here is in the form of trade restraint?
Judgement of the Court
The plaintiff’s claim was rejected by the High Court of Calcutta because the agreement is in the form of
trade restraint. This lawsuit is a turning point for fair competition protection. The concept of trade restraint
was established in India as a result of this decision. It clarified all doubts and ambiguity around this concept.
Superintendence Company of India vs Krishan Murgai
Facts of the case
A contract of employment stated that the employee would not work for any of his employer’s opponents in
Delhi or start a nearly equivalent business in Delhi for two years after the respondent’s employment ended.
On the terms and conditions of the contract, the respondent worked for the appellant’s firm as the branch
manager of the New Delhi office. After seven years, the respondent’s employment came to an end. In Delhi,
the respondent started his own firm, which is identical to the former appellant’s business. Now, the appellant
has sued in this matter, demanding damages of Rs. 55,000 for violating the employment contract.
Issues involved in the case
Whether the agreement was valid and enforceable against the respondent?
Judgement of the Court
Restraint on trade after an employment contract has ended was found to be void and unenforceable in this
case. The agreement was declared invalid and unenforceable against the respondent.
M.S.B. Institute of Financial Market v. Ramakar Jha
Section 28
An agreement in absolute restraint of legal proceedings is void.
Simply put, all agreements are null and void if
They make it illegal for a party to approach a relevant court or tribunal if the parties' rights are
breached.
Limit the amount of time an aggrieved party has to contact such a court or tribunal.
By agreement, make a party exempt from responsibility.
EXCEPTIONS
1. This part doesn't make a contract illegal if two or more people agree that any disagreement they have
will be solved by arbitration, and only the awarded amount can be claimed for that disagreement.
2. This part doesn't make a contract illegal if two or more people agree in writing to use arbitration for
any question that has already come up between them, and it doesn't change any existing laws about
arbitration references.
3. This part doesn't make a written contract illegal if a bank or financial institution includes a term in a
guarantee or agreement that extinguishes rights or releases a party from liability under the agreement
after a specified period of at least one year from a specified event.
Case Laws
Dilip Kumar v. Tata Finance Ltd
In this case parties enter into a sale- purchase agreement, and it was executed in Madras. In a clause of the
agreement, it was stated that in case of any dispute regarding the same, it is to be referred to arbitration in
Bombay only. It was made clear by the parties that the place for arbitration is Bombay. The petitioner argues
that some amount of payment is made in Bhubaneswar, the courts of Bhubaneswar have the jurisdiction to
try the matter.
The court held that the arbitration clause in the agreement states that disputes shall be resolved in Bombay
and therefor Bombay have the jurisdiction regarding the same. It was also argued by the court that the place
in which payment is made does not give jurisdiction to that place, therefor the courts of Bhubaneswar does
not have the jurisdiction to try the case.
THE AGREEMENT IS VALID.
United India Insurance Company v. Associated Transport Company
In this case, there was a document called a consignment note that had a statement saying that any legal
matters related to it would be dealt with only in Bombay. However, this statement was just printed on the
note and not signed by the person sending the goods but the carrier’s employee signed it.
The court said that simply printing the statement doesn't automatically mean both parties agreed to it. What
really matters is whether both parties knew about it and agreed to it. So, if both parties didn't know about
this statement or didn't agree to it, then it doesn't hold them to deal with legal matters only in Bombay.
THERE WAS NO MEETING OF MINDS AND HENCE THE CONTRACT IS NOT ENFORCEABLE.
National Insurance Company v. S.G. Nayak
Section 29
Agreements void for uncertainty. —Agreements, the meaning of which is not certain, or capable of being
made certain, are void.
Case Laws
Deojit v. Pitambar
In the case, the defendants, who lived in a specific place, signed a document pledging their property as
security for a debt. In a contract it was mentioned “our property with all the rights and interests”. However,
the document didn't clearly specify which property was being pledged. Just saying they were residents of
that place wasn't enough to identify their property. If they had mentioned they were the owners of certain
property, then it would have been clearer.
The Agreement is Void as there is no certainty.
S.R.V. Raja v. Francis Xavier Joseph Periar
It was held that where both the parties were fully aware of the identity of the property to be conveyed under
the agreement.
The agreement would not be uncertain merely because the exact boundaries, survey number or location were
not mentioned in the agreement, if the identity of the property could be reasonably ascertained their form.
Section 29 cannot be applied.
Daulat Ram v. State of Punjab
In this case, a clause in an arbitration agreement stated that any dispute would be referred to the
superintending engineer. The clause was challenged for being vague because it referred to the officer
currently holding the position. However, the court explained that this clause wasn't vague simply because it
referred to the current officeholder. It's because the position of superintending engineer is a designated role,
and whoever holds that role would naturally be the one to handle such disputes. Therefore, the clause was
considered valid and not vague.
The court held that there is no uncertainty as no particular name is mentioned but just a designation.
Bahadur Singh v. Fuleshwar Singh
In this case, it was held by the court that, If the conditions of a contract can be made certain, then it is not
null and void. The contract’s meaning shouldn’t be ambiguous, and it also needs to be demonstrated that it
cannot be made certain. A contract is not voidable by mere vagueness or uncertainty that can be readily
resolved through appropriate interpretation. If the terms of an oral agreement can be precisely ascertained,
then it will not be deemed unclear.
Section 30 (Wagering)
Agreements by way of wager void.
A "wager" is an arrangement in which money is paid from one party to another based on the occurrence or
non-occurrence of an unknown event.
Essentials
1. It must be dependent on an uncertain act: The agreement's subject matter must rely on an uncertain
event. In the case of Jethmal Madanlal Jokotia v. Nevatia, it was held that although a wager is generally
about a future event, it may also be of an event that happened in the past but the parties were not aware
of its result or the time of its happening.
2. Mutual chance of gain or loss.
3. No party must have control over the event – In the case of Dayabhai v. Lakshmi Chand, it was held
that if any of the party can influence the event, then not a wager.
4. Must have no other interest other than the stake of winning or losing.
Exceptions
1. Horse racing competition
2. Share market transactions
3. Insurance contract
4. Competition involving skills
Case Laws
State of Andhra Pradesh v. Satyanarayan
It was held that rummy is a predominantly skill-based game since the fall of the cards has to be memorized
and skill is required in holding and discarding cards. Hence, we cannot say that rummy is a game completely
bases on chance.
Varun Gumber vs UT of Chandigarh
The High Court made its stance clear that Dream 11 is completely a game of skill and held that fantasy
sports did not amount to gambling. The Court also added that Dream 11 was conducting a business activity
protected under Article 19(1) (g) of the Constitution.
Gurdeep Singh Sachar v. Union of India
The legality of Dream11 was questioned once more. The court reaffirmed that participants in Dream11 don't
bet on match outcomes but rather act like selectors, choosing teams. Points are earned throughout the entire
match, not just specific parts. This analysis supported Dream11's position. In 2020, the Rajasthan High
Court dismissed another PIL in Chandresh Sankhla v. The State of Rajasthan and Ors.
(2020), which claimed that Dream11 was involved in cricket betting, giving Dream11 the benefit of the
doubt again.
D. Siluvai v. State of Madras
The Madras High Court has raised concerns about online games, especially how they attract young people
with prize money involved. They've called for tighter regulations. The court also sent notices to MPL
ambassador Virat Kohli and My11Circle ambassador Sourav Ganguly for promoting these apps. These apps
not only offer fantasy sports but also include online rummy, which was a major issue in the Siluvai case.
Section 31-36 (Contingent Contracts)
Under section 31, Contingent contract is defined as 'contingent contract is a contract to do or not to do
something, if some event, collateral to such contract, does or does not happen.’
Illustration – A contracts to pay to B rupees 10,000 to B if B’s house is burnt. This is a contingent contract.
Essentials
1. There must be two parties.
2. It must be an uncertain future event which should be collateral to the contract.
3. The parties may have some control over the event but not absolute control.
4. Third person may be interested in a contract.
5. This contract is to indemnify the loss.
Difference between Wagering and Contingent
Based on distribution Contingent contract Wagering agreement
Void/Valid It is a valid contract. It is a void agreement.
It may or may not contain reciprocal
Reciprocal promise It contains reciprocal promises.
promises.
Main or collateral A future event is collateral in the case of A future event is essential in case of a
future events a contingent contract. wagering agreement.
Contingent may not be of a wagering Wagering agreement is always of
Nature
nature. contingent nature.
Its parties have no other interest in the
Its parties may have other interests as
subject matter of the agreement. It is a
Interest of parties well. It is not a game and winning or
game-winning or losing that matter
losing doesn't matter.
alone.
Case Laws
Rahim Saheb v. Raja Ram
In this case, two wrestlers entered into an agreement that they will wrestle in Poona on a certain day. The
party who fails to appear in the wrestling match will pay Rs. 500 to the other party and the winning wrestler
would get Rs 1,125 from the gate money. One of them failed to appear in the wrestling match and the
plaintiff sued him for Rs. 500. The defendant contended that the agreement is void because it was a
wagering agreement.
The court observed that it was not a wagering agreement as there was no mutual chance of gain or
loss. In this scenario, both parties could win but neither could lose because the money had to be paid
from gate fees given by the public and not from the pocket of either party.
Chandulal v. CIT (Commissioner of income tax)
In this case, it was held by the Supreme Court that all contracts of insurance and indemnity are contingent
and are legally enforceable.
Nandkishor v. New Era Fabrics
Section 32- Enforcement of contracts contingent contract on an event happening.
‘Contingent contracts to do or not do anything if an uncertain future event happens cannot be enforced by
laws unless and until that event has happened. If the event becomes impossible, such contracts are called
void.’
In this case, a contract was made to sell land with a factory, but certain conditions needed to be met for the
contract to be valid. These conditions included approval from labour unions and relevant authorities for
changing land use from agriculture to commercial. However, these conditions weren't fulfilled. As a result,
the contract couldn't be enforced against the seller.
Frost v. Knight
Section 34- When an event on which the contract is contingent is to be deemed impossible if it is the future
conduct of a living person.
In this case, contract was formed stating that the defendant must marry the plaintiff after the death of the
father. However, the defendant during the lifetime of the father married another woman. Hence, the future
conduct of the defendant made the contract to be performed impossible thereby leading to breach of
contract.
VOID.
Section 33 of the Act states that the enforcement of the contract depends upon the non-happening of the
event. Under such circumstances when the event can no longer happen then only the performance can be
demanded.
Section 35 of the Act states that when a contract is contingent, it becomes void or impossible on the
happening of an event within the specified time or at the expiration of the time fixed or before the time
fixed. Moreover, such a contingent contract may be enforceable on the non-happening of an event within the
specified time.
Section 36 - Agreement contingent on impossible events void. —Contingent agreements to do or not to do
anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to
the parties to the agreement at the time when it is made.
Discharge of Contracts
A contract is discharged when it seizes to exist or operate.
Modes
1. By performance – Actual Performance (Section 37), Attempted Performance (Section 38)
2. By Mutual Consent (Sections 62 & 63)
a) Novation - It occurs when a contract is substituted for the old contract between the same or
new parties.
b) Rescission - Rescission takes place when the parties in the contract agree to dissolve the
contract. In this case, the old contract stands discharged and no new contract is formed.
c) Alteration - It means changing one or more contract terms, thereby discharging the old contract
and forming a new one. Alterations to a contract must take place with the consent of all the
parties to the contract.
d) Remission - Remission occurs when parties to a contract accept a lesser amount or lesser
degree of performance than what was initially agreed upon in the contract. Section 63 of the Act
states that a party may;
Remit the performance stated wholly or in part.
Extend the time for performance.
Accept any other kind of performance apart from the one mentioned in the contract.
e) Waiver - The term waiver means the abandonment of a right. A party to a contract may have
their rights specifically stated under the contract which also helps to release the other party from
the contract and the contract is discharged.
3. By Lapse of Time – A contract will be discharged if the performance is not completed within the
given time a reasonable time.
4. By Operation of Law – Circumstances such as death, insolvency, mergers etc which do not enable the
fulfilment of the promise such situation will fall under this.
5. Specific Performance – In simple terms, specific performance is a resolution in the court system for
when someone breaches a contract. Also called a remedy, specific performance is enforced by a court or
a judge, and requires a party to fulfil their contractual obligations. For example, someone signed a
contract with their partner when they bought a dog that if they broke up, they would share custody. That
person decides not to follow through on that contract when they break up, and the court tells them they
need to follow through on shared custody.
the court may grant specific performance in the following cases,
i. Where it is not probable that monetary compensation will be available.
ii. Where there is no standard available to calculate the value of damages caused by non-
performance.
iii. Where the act or a subject matter is such that monetary value of the subject matter cannot be
calculated.
6. Discharge by Breach – contracting party refuses, fails to perform then the contract is discharged by
breach. It is of 2 type, Actual and Anticipatory (implied).
7. Frustration of Contract
Doctrine of Frustration (Section 56)
Agreement to do impossible act – Void.
If at become impossible after the contract is made – Void.
Compensation for loss through non-performance of act known to be impossible or unlawful.
Essentials and conditions necessary for the application of section 56.
1. There exists a valid and subsisting contract between the parties.
2. There must be some part of the contract which is yet to be performed.
3. The contract after it is entered becomes impossible.
Effects of this Doctrine.
1. This doctrine terminates the contract automatically.
2. It discharges the parties from their obligations and duties.
3. It puts an end to the rights of the parties.
4. Compensation for non-performance in cases where 1 of the parties already knew about the
impossibility.
Frustration of contract can be in the following cases.
1. Death or incapacity of a party – Robinson v. Davison (concert contract, singer couldn’t come
because voice pain, hence frustrated).
2. By virtue of legislation – Where, a law promulgated after the contract is made, makes the
performance of the agreement impossible and thereby the agreement becomes void (Tahira Begum v.
Rozan Mia).
3. Change in circumstances.
4. Destruction of subject matter. (Taylor v. Cadwell), [Appleby v. Mysers – kothai the destruction of a
thing other than the subject matter but essential for the performance of the contract can also result in
frustration].
Case Laws.
Section 46-50
Section 55
