1

3: Other void agreements

(Section 25) Agreements made without consideration is void.:- An agreement without the consideration is
void unless :-

1. Love and affection

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

2. Promise to compensate for voluntary service done

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

3.Promise to pay a time barred debt -

it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or
specially authorized in that behalf, to pay wholly or in part a debt of which the creditor might have enforced
payment but for the law for the limitation of suits.
In any of these cases, such an agreement is a contract.
Explanation 1.-Nothing in this section shall affect the validity, as between the donor and donee, of any gift
actually made.
Explanation 2.-An agreement to which the consent of the promisor is freely given is not void merely because
the consideration is inadequate; but the inadequacy of the consideration may be taken into account by the Court
in determining the question whether the consent of the promisor was freely given.
Illustrations

(a) A promises, for no consideration, to give to B Rs. 1,000.-- This is a void agreement.

(b) A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into
writing and registers it. -- This is a contract.

(c) A finds Bs purse and gives it to him. B promises to give A Rs. 50 -- This is a contract.
(d) A supports Bs infant son. B promises to pay As expenses in so doing.-- This is a contract.

(e) A owes B Rs. 1,000, but the debt is barred by the Limitation
Act. A signs a written promise to pay B Rs. 500 on account of the debt.-- This is a contract.

(f) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. As consent to the agreement was freely given. The
agreement is a contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A denies that his consent to the agreement was freely
given.
The inadequacy of the consideration is a fact which the Court should take into account in considering whether
or not a consent was freely given.
 2

(Section 26) Agreement in restraint of marriage of any major person is void :- Every agreement in
restraint of the marriage of any person , other than a minor is void. It is the policy of the law to discourage
agreements which restrains freedom of marriage . The restraint may be general or partial , that is to say , the
party may be restrained from marrying at all , or from marrying for a fixed time or from marrying a particular
person or class of persons , the agreement is void .
The only exception is in favour of a minor.
A penalty upon remarriage may not be construed as in restraint of marriage.
Agreement that upon remarriage, the widow would lose the right to maintenance; the husband marrying a
second wife, the first would get a right to divorce him -- Valid

(Section 27Agreement in restraint of trade is void.):- Every agreement by which anyone is restrained from
exercising a lawful profession, or trade or business of any kind , is to that extent void. There are two kinds of
exception to the rule , those created by Statutes:-

(i) Sale of Goodwill :- The only exception mentioned in the proviso to section 27 is that relating to sale of
goodwill . It states that One who sells the goodwill of the 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 the
title to the goodwill from him , carries on a like business therein : Provided that such limits appear to the court
reasonable , regard being had to the nature of the business.
(ii)
(iii) Partnership Act :- There are four provisions in the Partnership Act which validate agreements in
restraint of trade. Section 11 enables partners during the continuance of the firm to restrict their mutual liberty
by agreeing that none of them shall carry on any business other than that of the firm. Section 36 enables them
to restrain an outgoing partner from carrying on a similar business within a specified period or within a
specific local limits. A similar agreement may be made by partners upon or I anticipation of dissolution.

Exception to the rule as per Judicial Interpretation :-

(iii) Exclusive Dealing Agreements: - Business practice in vogue is that a producer or manufacturer likes to
market his goods through a sole agent or distributor and the latter agrees in turn not to deal with the goods of
any other manufacturer. In the case of Percept D. Mark (India) Pvt. Ltd. v Zaheer Khan[1] , it was observed by
the Court that Negative Covenant in a contract that the covenantee would not sell a similar product of a
competitor does not necessarily in restraint of trade , it could also be in furtherance of the trade.

(iv) Restraints Upon Employee :- An agreement of service often contain negative covenants preventing the
employee from working elsewhere during the period covered by the agreement . Trade Secrets , name of
customers etc. are also the property of master and servant is not supposed to disclose it to anyone else . An
agreement of this class does not fall within Section 27.
 3

An agreement the terms of which are uncertain is void. (Section 29) :- Agreements , the meaning of which is
not certain , or capable of being made certain , are void. It is a necessary requirement that an agreement in order
to be binding must be sufficiently definite to enable the court to give it a practical meaning. An agreement to
agree in the future is void, for there is no certainty whether the parties will b able to agree.[3]

Where only a part or a clause of the contract is uncertain , but the rest is capable of bearing a reasonably certain
meaning , the contract will be regarded as binding.[4] Similarly , if the agreement is totally silent as to price , it
will be valid , for , in that case , Section 9 of the Sale of Goods Act,1930 will apply and reasonable price shall
be payable.

Illustrations

(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.
(c) A, who is a dealer in cocoanut-oil only, agrees to sell to B
"one hundred. tons of oil". The nature of As 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 cocoanut-oil.
(d) A agrees to sell to B " all the grain in my granary at
Ramnagar ". There is no uncertainty here to make the agreement void.
(e) A agrees to sell 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,
 4

(Section 30) -- An agreement by way of wager (betting/gambling) is void.:-

Agreements by way of wager are void ; and no suit shall be brought for recovering anything alleged to be won
on any wager or entrusted to any person to abide by the result of any game or other uncertain event on which
any wager is made . The section does not define Wager. But wager can be said as a promise to give money or
moneys worth upon the determination or ascertainment of an uncertain event .

Literally the word wager means a bet something stated to be lost or won on the result of a doubtful issue,
and, therefore, wagering agreements are nothing but ordinary betting agreements.

. Example: In a wrestling bout, A tells B thatwrestler no.1 will win. B challenges the statement of A. They bet
with each other over the result of the bout. This is a wagering agreement.

Wager is a promise to give money or moneys worth upon the determination or ascertainment of an uncertain
event .

On the other hand section 31 of the Indian Contract Act defines contingent contract as one to do or not to do
something , if some event , collateral to such contract , does not happen .

In the leading case of Carlill vs. Carbolic Smoke Ball Co. , Honble Justice Hawkins has given an illustrative
definition of wager . According to him a wagering contract is one by which two persons professing to hold
opposite views touching the issue of a future uncertain event , mutually agree that , dependent on the
determination of that event , one shall pay or hand over to him , a sum of money or other stake ; neither of the
contracting parties having any other interest in that contract than the sum or stake he will so win or lose , there
being no other real consideration for the making of such contract by either of the parties . It is essential to a
wagering contract that each party may under it either win or loss , whether he will win or loses being dependant
on the issue of the event , and , therefore , remaining uncertain until that issue is known . If either of the parties
may win but can not lose , it is not a wagering contract .

Essentials of Section 30:

1) Mutual chances of gain and loss

There must be two parties, or two sides, and mutual chances of gain and loss, i.e., one party is to win and the
other to lose upon the determination of the event. It is not a wager where one party may win but cannot lose, or
if may lose but cannot win, or if he can neither win nor lose, if one of the parties has the event in his own
hands, the transaction lacks an essential ingredient of wager.It is of the essence of the 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.

2) Two parties

There must be two persons, either of whom is capable of winning or losing.

.you cannot have two parties or more than two sides to bet. You may have a multi partite agreement to
contribute to a sweepstake(which may be illegal as a lottery if the winner is determined by skill), but you cannot
have a multipartite agreement for a bet unless the numerous parties are divided in to two sides, of which one
wins or the others loses, according to whether an uncertain event does not happen.[vi]
 5

3) Uncertain Event

Uncertainty in the minds of the parties about the determination of the event in one way or other is necessary. A
wager generally contemplates a future event; but it may even relate to an event which has already happened in
the past, but the parties are not aware of its result or the time of its happening

The first thing essential to wager is that the performance of the bargain must depend upon the determination of
an uncertain event. A wager generally contemplates future events; but it may even relate to an event which has
already happened in the past, but it may even relate to an event which has already happened in the past, but the
parties are not aware of its result or the time of its happening.

4) No interest other than stake

Neither party should have any interest in the happening of the event other than the sum or stake he will win or
lose. To constitute a wager, the parties must contemplate the determination of the uncertain event as the sole
condition of their contract. The stake must be the only interest which the parties have in the contract.[viii]

5) Neither party to have control over the event

Lastly, neither party should have control over the happening of the event one way or the other. If one of the
parties has the event in his own hands, the transaction lacks an essential ingredient of a wager. [ix]

This rule has two exception to it , which is as follows :-

(i) Horse Race:- This section does not render void a subscription or contribution, or an agreement to subscribe
or contribute , towards any plate , prize or sum of money of the value or amount of 500 Rs. Or upwards to the
winner or winners of any horse races .

(ii) Crossword Competitions & Lottery :- If skill plays a substantial part in the result and prizes are awarded
according to the merits of the solution , the competition is not a lottery. Otherwise it is . Thus , literary
competitions which involve the application of skill and in which an effort is made to select the best and most
skilful competitor, are not wagers.

Speculative Transactions

A speculative contract is not necessarily a wagering contract, and must be distinguished from agreements by
way of 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
sale, to purchase the same quantity 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 different persons, it puts the defendant in the position vicariously to perform his contracts. This is, no
doubt, a highly speculative mode of transacting business; but the contracts are 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. There is no law against speculation as there is against gambling. A fortiori,
dealings between stockbrokers, whose regular course of business is periodical settlement of differences, are not
presumed to be wagering agreements. 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,
 6

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 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. Every forward contract is to some extent
speculative, but is not a wager or gamble on that account. The distinction between the two is a narrow one.

Agreements Collateral to Wagering Agreements

Contract collateral to a wagering agreement is not necessarily unenforceable.Section 30 of the Contract Act is
based upon the provisions of S. 18 of the (English) Gaming Act 1845, and though a wager is void and
unenforceable, it is not forbidden by law. Therefore the object of a collateral agreement is not unlawful under s
23 of the contract act. But it is otherwise under the (English) Gaming acts of 1845 and 1892, the acts being
wider and more comprehensive in phraseology, because they expressly render void even collateral transactions.
As a result, though an agreement by way of wager is void, contract collateral to it or in respect of a wagering
agreement is not void except in Bombay state. There is nothing illegal in the strict sense in making bets. They
are merely void and there would be no illegality in paying them or giving a cheque, but payment cannot be
compelled.[xxx] But an arbitration clause in a wagering contract is a part of the contract and not collateral to it
and cannot therefore be enforced.

Effects of Wagering Agreement

A wagering agreement is void ab initio, and S. 65 has no application to it. Money paid directly by a third party
to a winner of a bet cannot be recovered from the loser. Even if a loser makes a new promise to pay for his
losses in consideration of his not being posted, the promise cannot be enforced; but if he gives a cheque in
discharge of his liability, the cheque may not be tainted with illegality because of the winners promise not to
have the name posted. The cheques will not be enforceable by the original payee, but may be enforced by a
third party holder of the cheque, even if he knew of the facts leading up to giving of the cheque.

It has been laid down by the Supreme Court, in Gherulal Parekh v.Mahadeo Das[xii] that though a wager is void
and unenforceable it is not forbidden by law .Hence a wagering agreement is not unlawful under section 23 of
the Contract Act and therefore the transactions collateral to the main transaction are enforceable.
 7

Laws Related To Wager

This section represents the whole law of wagering now in force in India, supplemented by the Bombay state by
the act for avoiding wagers (amendments) act 1865, which amended the act for avoiding wagers 1848. Before
the act of 1848 the law relating to wagers in force in British India was the common law in England. By that law
an action might be maintained on a wager, if it was not against the interest or feelings of third persons, did not
lead to indecent evidence, and was not contrary to public policy. The nature of gambling is inherently vicious
and pernicious. Gambling activities which have been condemned in India since ancient times appear to have
been equally discouraged and looked upon with disfavour in England, Scotland, the United States of America
and Australia. The Hindu law relating to gambling has not been introduced in the law of contract in India.[xv]
Gambling is not trade and commerce, but res extra commercium and therefore not protected under art 19(1) or
art 301.[xvi]

Comparison with the English Law

Many countries have laws which render gaming or wagering contracts void. It is important to point out at the
outset that these laws do not render gambling illegal. All they do is prevent the gaming and wagering contracts.
The great majority of common law jurisdictions have adopted gaming laws based on the UK Gaming Act 1845.
Legislation in all Australian jurisdictions for example is based on S. 18 of the Gaming Act, which provides that
the contracts by way of wagering and gaming are null and void.[xvii] The Gaming and Wagering laws of
Malaysia, Singapore, Hong Kong and New Zealand are also modeled after the UK Gaming Act.

Until the enactment of the Gaming Act, 1845, wagering contracts were not prohibited by law in England. But
Section 18 of the Gaming Act, 1845 (UK) declared that all contracts or agreements by way of wager shall be
null and void and that no suit shall be brought or maintained in any Court of law and equity for recovering any
sum of money or valuable thing alleged to be won upon any wager. However, certain dealings in investments by
way of business are excepted from invalidity under Section 18 even though they might amount to wagering
contracts. For example, contracts for differences or bets on stock market indices.[xviii]

Section 30 of the Indian Contract Act 1872 is influenced by the English Gaming Act 1845. Heavily influenced
by the English decisions, the judges have adopted the essential features of that of the gaming act. However,
there is a major difference between the English and the Indian laws relating to wagers: under the English
Gaming Act, 1845, agreements Collateral to the wagering agreement are also rendered to be void,38 whereas in
India, collateral agreements are not necessarily void except in Bombay,[xix] because The object of such a
collateral contract may not necessarily be unlawful. Further the Apex Court held that, By law an act might be
maintained on a wager if it was not against the interest or feelings of a third person, did not lead to indecent
evidence and was not contrary to public policy.]

As previously mentioned, a number of Indian companies when incurring losses in foreign exchange dealings,
construct an argument that derivative transactions are in the nature of wagering agreements, and are hence not
enforceable in Indian Courts under Section , and hence do not give rise to any liability or financial obligations
in respect of repayment of loan to the bank. As a result of this, many conservative Indian banks such as the State
Bank of India refrained from entering into any sort of derivative transactions with their clients for a fairly long
time.
 8

In Gherulal Parakh v. Mahadeodas Maiya, a question arose as to whether a partnership formed for the purpose
of entering into forward contracts for the purchase and sale of wheat so as to speculate in rise and fall of price of
wheat in future, was a wager and whether it was hit by Section 30 of the Contract Act. But the Supreme Court
held that such a partnership was not illegal, although the business for which the partnership was formed, was
held to involve wagering. It was held therein as follows:

After the enactment of the Gaming Act, 1845, a wager is made void but not illegal in the sense of being
forbidden by law, and thereafter a primary agreement of wager is void but a collateral agreement is enforceable;

There was a conflict on the question whether the second part of Section 18 of the Gaming Act, 1845, would
cover a case for the recovery of money or valuable thing alleged to be won upon any wager under a substituted
contract between the same parties: the House of Lords in Hill's case[xxiii] had finally resolved the conflict by
holding that such a claim was not sustainable whether it was made under the original contract of wager between
the parties or under a substituted agreement between them;

So under the Gaming Act, 1892, in view of its wide and comprehensive phraseology, even collateral contracts,
including partnership agreements, are not enforceable;

As Section 30 of the Indian Contract Act is based upon the provisions of Section 18 of the Gaming Act, 1845,
and though a wager is void and unenforceable, it is not forbidden by law and therefore the object of a collateral
agreement is not unlawful under Section 23 of the Contract Act; and partnership being an agreement within the
meaning of Section 23 of the Indian Contract Act, it is not unlawful, though its object is to carry on wagering
transactions.

Wagers Distinguished From Contract Of Insurance

A transaction of insurance resembles a wager. Every contract of insurance is a wager if the insurer has no
insurable interest in the event upon which insurance money is payable. The insurance interest lies normally in
that the event is one which is prime facia adverse to the interest of the insurer.[xxiv] If a insures cargo which he
has loaded on a vessel , his contract is not a wager because his property is at risk during the voyage; but if has
no cargo on board, the contract is a wager; because if the vessel is not lost, he loses the amount of premium.

Section 6 of the Marine Insurance Act 1963, provides that every contract of marine insurance by way of wager
is void; and that a contract of marine insurance is deemed to be a wagering contract where the assured has not
an insurable interest. The (English) marine insurance act 1906, also provides that a contract or Marine Insurance
is deemed to be a gaming or wagering contract if the insured has no interest in the adventure.

A truck owned by a was transferred benami to b who got it insured in his own name. The truck was involved in
an accident and it seriously injured a young army officer who claimed heavy damages from the owner, driver
and the benamidar and the insurance company. It raised the plea that an ostensible owner (a benamidar) had no
insurable interest and that it was a wager for that reason. But these pleas were negatived by the high court.
Contract Of Gaming

A gaming contract consist of the mutual promises which the players of the game necessarily make, express or
by implication, in paying for a stake as to its transfer upon the result of the game. Such contract may be a wager
if the parties are two.
 9

In K.R. Lakshmanan (Dr) v State of Tamil Nadu , the Supreme Court had an occasion to decide whether horse
racing amounts to gaming as defined under the Madras City Police Act 1888, and the madras gaming act. It
stated:

Gambling in a nutshell is a payment of a price for a chance to win a prize. Games may be of chance or of skill
and chance combined. A game of chance is determined entirely or in part by lot or mere luck. A game of skill-
although the element of chance necessarily cannot be entirely eliminated- is one in which success depends
principally upon the superior knowledge, training, attention, experience and adroitness of the player.

Speculative Transactions

A speculative contract is not necessarily a wagering contract, and must be distinguished from agreements by
way of 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
sale, to purchase the same quantity 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 different persons, it puts the defendant in the position vicariously to perform his contracts. This is, no
doubt, a highly speculative mode of transacting business; but the contracts are 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. There is no law against speculation as there is against gambling. A fortiori,
dealings between stockbrokers, whose regular course of business is periodical settlement of differences, are not
presumed to be wagering agreements. 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 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. Every forward contract is to some extent
speculative, but is not a wager or gamble on that account. The distinction between the two is a narrow one.

Agreements Collateral to Wagering Agreements

Contract collateral to a wagering agreement is not necessarily unenforceable.Section 30 of the Contract Act is
based upon the provisions of S. 18 of the (English) Gaming Act 1845, and though a wager is void and
unenforceable, it is not forbidden by law. Therefore the object of a collateral agreement is not unlawful under s
23 of the contract act. But it is otherwise under the (English) Gaming acts of 1845 and 1892, the acts being
wider and more comprehensive in phraseology, because they expressly render void even collateral transactions.
As a result, though an agreement by way of wager is void, contract collateral to it or in respect of a wagering
agreement is not void except in Bombay state. There is nothing illegal in the strict sense in making bets. They
are merely void and there would be no illegality in paying them or giving a cheque, but payment cannot be
compelled.[xxx] But an arbitration clause in a wagering contract is a part of the contract and not collateral to it
and cannot therefore be enforced.
 10

A collateral agreement is not unlawful under s 23 of the contract act.

Apart from Bombay enactment, there is no statute declaring void agreements collateral to wagering contract.
Nor is there anything in the present section to render such agreements void. The policy of law in India has been
to sustain the legality of wagers and not to hit at collateral contracts.[xxxiv] 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.

The Supreme Court has held that if agreement collateral to another or of aid in facilitating the carrying out of
the object of the other agreement, which though void, is not in itself prohibited within the meaning of s 23 of
the contract act, may be enforced as collateral agreement. If on the other hand it is part of a mechanism to defeat
what the law has actually prohibited, courts will not countenance a claim based upon the agreement because it
will be tainted with an illegality of the object sought to be achieved, which is hit by s 23 of the contract act. An
agreement cannot be said to be forbidden or unlawful merely because it results in a void contract. a void
agreement when coupled with other facts may become part of a transaction which creates legal rights but this is
not so if the object is prohibited or mala in se.

In England also, agreements collateral to wagering contracts were not void before the enactment of the gaming
act 1892. Thus in Read v Anderson[xxxvii] a betting agent, at the request of the defendant, made bets in his own
name on behalf of the defendant. After the bets were made and lost, the defendant revoked the authority to pay
conferred upon the betting agent. Notwithstanding the revocation, the agent paid the bets, and sued the
defendant having empowered the agent to bet in his name, the authority was irrevocable, and that the agent was
entitled to judgment. The statute of 1892, passed in consequence of this decision, is almost to the same effect as
the Bombay act. It is interesting to note that the statute was not passed until 27 years after the Bombay act. It is
hoped that in future, the revision of the contract act will corporate provisions of the Bombay act in the present
section, so as to render the law uniform on this subject in the whole of India.

The act for Avoiding Wagers (amendment) act 1865 (Bombay act 3 of 1865)

The law is however, different in the state of Bombay. In that state, contracts collateral to or in respect of
wagering transactions are prevented from supporting a suit by the special provisions of the act for avoiding
wagers (amendment) act 1865 (Bombay act 3 of 1865). It was observed:

That act was passed to..to close the doors of the courts of justice in the presidency to suits upon contracts
collateral to wagering transactions where such collateral contracts have been entered into or have arisen since
the act came into force, a purpose which it has effectually answered.

Derivatives

The position of derivatives under the common law

Two English decisions have caused concern among market participants that certain derivatives transactions may
fall foul of the gaming and wagering laws. In Universal Stock Exchange v. Strachan[xxxviii], the court held that
wagering contracts included contracts for differences. Halsbury defines contracts for differences as;
 11

Agreements between those who are only ostensible buyers and sellers of stock and shares where the common
interest of the parties is to pay or receive the differences between their prices on one day and their prices on
another day.

In the second decision, City Index Limited v. Leslie, the court declared that contracts akin to cash-settled
derivatives were contracts for differences. The combined effect of both decisions is that cash-settled
derivatives are wagering contracts and therefore unenforceable, unless exempted by legislation.

Of contingent contracts
31. Contingent contract defined
A 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 Rs.10,000 if Bs house is burnt. This is a contingent contract.
 12

32. Enforcement of Contracts contingent on an event happening

Contingent contracts to do or not to do anything in an uncertain future event happens, cannot be
enforced by law unless and until that event has happened. If the event becomes impossible, such
contracts become void.

Illustrations
(a) A makes a contract with B to buy Bs horse if A survives C. This contract cannot be enforced by
law unless and until C dies in As lifetime.

(b) A makes a contract with B to sell a horse to B at a specified price, if C, to whom the horse has been
offered, refuses to buy him. The contract cannot be enforced by law unless and until C refuses to buy
the horse.

(c) A contracts to pay B a sum of money when B marries C. C dies without being married to B. The
contract becomes void.
 13

33. Enforcement of contract contingent on an event not happening-

Contingent contracts to do or not to do anything if an uncertain future event does not happen, can be
enforced when the happening of that event becomes impossible, and not before.

Illustration
A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. The contract can
be enforced when the ship sinks.

Events linked with human conduct ( S.34)

34. When event on which contract is contingent to be deemed impossible, if it is the future
conduct of a living person-
If the future event on which a contract is contingent is the way in which a person will act at an
unspecified time, the event shall be considered to become impossible when such person does anything
which renders it impossible that the should so act within any definite time, or otherwise than under
further contingencies.

Illustration
A agrees to pay B a sum of money if B marries C, C marries D. The marriage of B to C must now be
considered impossible, although it is possible that D may die and that C may afterwards marry B.
 14

35. When contracts become void, which are contingent on happening of specified event within
fixed time: Contingent contracts to do or not to do anything, if a specified uncertain event happens
within a fixed time, become void, if, at the expiration of the time fixed, such event has not happened,
or if, before the time fixed, such event becomes impossible.
When contracts may be enforced, which are contingent on specified event not happening within
fixed time : Contingent contract tutu or not to do anything, if a specified uncertain event does not
happen within a fixed time, may be enforced by law when the time fixed has expired and such event
has not happened, or before the time fixed has expired, if it become certain that such event will not
happen.

Illustrations
(a) A promises to pay B a sum of money if a certain ship returns within a year. The contract may be
enforced if the ship returns within the year; and becomes void if the ship is burnt within the year.
(b) A promises to pay B a sum of money if a certain ship does not return within a year. The contract
may be enforced if the ship does not return within the year, or is burnt within the year.
36. Agreements contingent on impossible event 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 agreement at the time when it is made.

Illustrations
(a) A agrees to pay B 1,000 rupees if two straight lines should enclose a space. The agreement is void.
(b) A agrees to pay B 1,000 rupees if B will marry As daughter C. C was dead at the time of the
agreement. The agreement is void.
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Of certain relations resembling those created by contract ( Quasi contrtacts)

INTRODUCTION AND RATIONALE OF QUASI CONTRACTS:-

Under the general heading of the Quasi contract there has been grouped a number of cases which have
little or no affinity with contract. A simple illustration is afforded by the action to recover money paid
by mistake. If the plaintiff on an erroneous interpretation of the facts, pays to the defendant a sum of
money which he does not really owe, law, no less than justice, will require he defendant to restore it.
But his obligation is manifestly not based upon the consent, even in the extended meaning borne by
the word in the English law, and its description as a quasi contractual liability serves only to
emphasize its remoteness from any genuine conception of contract.

This shows that there are many situations in which Law as well as justice require that a certain person
be required to conform an obligation, although he has not broken any contract nor committed any tort.
an another example for Quasi Contract would be worthy of Quoting for the better understanding of
Quasi Contract, that is if a person in whose home certain goods have been left by mistake is bound to
restore them. This shows that a person cannot entertain unjust benefits at the cost of some other
person. such kind of obligations are generally described, for the want of better or more appropriate
name, as Quasi Contractual Obligations.
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This would be better to explain it up that Quasi contract consists of the Contractual Obligation which
is entered upon not because the parties has consented to it but because law does not allow a person to
have unjustified benefit at the cost of other party.

RATIONALE:-

So far as there was not an established rule of Quasi Contractual obligation the English Lawyers were
content to enumerate the cases of the Quasi Contract for which they are provided a remedy as to many
species of indebitatus assumpsit, but they evaded the odious task of rationalization. But as soon as
the urge was felt to explore their juristic basis, controversy was born.

The first and the most ambitious attempt to provide such a basis was made by Lord Mansfield in
Moses v. Macferlan in year 1760[1]

Thus it was Lord MANSFIELD, who is considered to be the real founder of such obligations,
explained them on the principle that Law as well as Justice should try to prevent Unjust Enrichment,
that is enrichment of one person at the cost of another. His Lordship offered this explanation in Moses
v. Macferlan:[2]

Facts of the case:-

One Jacob issued four promissory notes to Moses and the latter indorsed them to Macferlan,
excluding, by a written agreement, his personal liability on the endorsement. Even so Macferlan sued
Moses on the endorsement and he was held liable despite the agreement. Moses was thus compelled to
discharge a liability which he had excluded and, therefore, sued to recover back his money from
Macferlan.

He was allowed to do so. After making the defendant liable to restore the money Lord MANSFIELD
continued as follows:

After stating that such money cannot be recovered where the person to whom it is given can retain it
with a safe conscience, he stated that here it lies for the money paid by mistake; or upon a
consideration which happens to be fail; or for money got through imposition; or extortion; or
oppression; or for an undue advantage taken off the plaintiffs situation, contrary to laws made for the
protection of the persons under those circumstances. In one word the gist of this kind of action is that
 17

the defendant, upon the circumstances of the case, is obliged by ties of the natural justice and equity to
refund the money.

The gist of this kind of action is that the defendant, upon the circumstances of the case, is obliged by
the ties of natural justice and equity to refund the money

Ingredients of unjust enrichment

The identification of quasi contracts with the implied contracts restricted the scope of relief which
would have been possible without any such hindrance under the principle of natural justice and
equity.

In Fibrosa Spolka Akeyjna v. Fairbain Lawson Combe Barbour Ltd.

The facts of the case are as follows:-

A sum of money was paid in advance under a contract for the supply of a machine Or for the supply
of machinery, and the performance was obstructed by the outbreak of war. Their Lordship allowed the
advance to be recovered back as having paid for a consideration which had wholly failed.

This principle presupposes three things:

First, that the defendant has been enriched by the receipt of a benefit;

Secondly, that he has been so enriched at the plantiffs expense;

Thirdly, that it would be unjust to allow him to retain the benefit.

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Under this Section the principle of unjust enrichment cannot be extended to give a right to the State to
recover or realise vend fee after the concerned statute for realisation or recovery of vend fee has been
struck down; M/s. Somaiya Organics (India) Ltd. V. State of Uttar Pradesh, AIR 2001 SC 1725.

Provisions under Indian contract law:-

Section 68 to 72 of the Indian Contract Act 1872 provides for five kinds of quasi-contractual
obligations they are as follows:-

1. supply of necessaries [sec. 68]

2. payment by interested person [sec. 69]

3. Liability to pay for non-gratuitous acts [sec. 70]

4. finder of goods [sec. 71]

5. Mistake or coercion [sec. 72]

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68. Claim for necessaries supplied to person incapable of contracting, or on his account -
If a person, incapable of entering into a contract, or anyone whom he is legally bound to support, is
supplied by another person with necessaries suited to his condition in life, the person who has
furnished such supplies is entitled to be reimbursed from the property of such incapable person.

Ingredients of the section:-

According to the language drawn upon by section 68 we got to know the following essentials to apply
this section.

1) Necessaries are being supplied,

2) Necessaries so supplied must be suited to the condition of life of that person to whom they are
supplied,

3) Necessaries are supplied to a person who is incapable of entering into a contract or anyone
whom he is legally bound to support,

4) The reimbursement is to be claimed from the property of that incapable person.

Illustrations
(a) A supplies B, a lunatic, with necessaries suitable to his condition in life. A is entitled to be
reimbursed from Bs property.
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(b) A suplies the wife and children of B, a lunatic, with necessaries suitable to their condition in
life. A is entitled to be reimbursed from Bs property.

69. Reimbursement of person paying money due by another, in payment of which he is interested
A person who is interested in the payment of money which another is bound by law to pay, and who
therefore pays it, is entitled to be reimbursed by the other.

Illustration
B holds land in Bengal, on a lease granted by A, the zamindar. The revenue payable by A to the
Government being in arrear, his land is advertised for sale by the Government. Under the revenue law,
the consequence of such sale will be the annulment of Bs lease. B to prevent the sale and the
consequent annulment of his own lease, pays the Government the sum due from A. A is bound to make
good to B the amount so paid.
COMMENTS
Contribution and reimbursementWhere a person is jointly liable with other to pay, a payment by him
of the others share would not give him a right of recovery under this
section; Jagpatiraju v. Sadnusannama, AIR 1916 Mad 980.

CONDITIONS FOR LIABILITY:-

The conditions for liability under this section may now be stated:

1) Payer must be interested in making payment:-

The first condition for establishing the liability is that the Plantiff should be interested in making
payment. The interest which the plantiff seeks to protect must be of course legally recognizable.

Allahabad High Court in Munni Bibi v. Triloki Nath,[10] and accordingly Madhya Pradesh High Court
in Transworld Shipping Services v. Owners etc.[11] has held that the plantiffs honest belief that he
has an interest to protect is enough for provide him reimbursement under this section.

2) He himself is not be bound to pay but is interested :-

The second essential condition is that it is necessary that the plantiff himself should not be bound to
pay. He should only be interested in making the payment only for the purpose of protecting his own
 21

interest. Where a person is jointly liable with others to pay, a payment by him of the others share
would not give him a right of recovery under this section.[12]

3) Defendant should be under a legal compulsion to pay:-

Thirdly the defendant should have been Bound by Law to pay the money. The words bound by
law have been held after some hesitation, to mean bound by law or by contract. It is not necessary
that the liability should only be statutory. In a judgment of Privy Council it was held that it is enough
that the defendant at the suit of any person might be compelled to pay[13]

Thus it has to be kept in mind as held by Madras High Court in Raghavan v. Alameru Ammal,[14] that
where a person is morally bound and not legally compellable to pay, he will not be bound to pay the
party discharging his moral obligation.

4) Payment should be made by one party to some other person

Lastly the Plantiff should have made payment to some other person and not to himself. As for example
in Secretary of State for India v. Fernandes,[15] a certain government was a tenent of a land and paid
to itself out of the rent due to the Landlord the arrears of the Land Revenue due to itself, the
government could not recover from the Landlord. This did not come within the principle of this
section as this is not a payment to another.

70. Obligation of person enjoying benefit of non-gratuitous act

Where a person lawfully does anything for another person, or delivers anything to him, not intending
to do so gratuitously, and such another person enjoys the benefit thereof, the letter is bound to make
compensation to the former in respect of, or to restore, the thing so done or delivered.

Illustrations

(a) A, a tradesman, leaves goods at Bs house by mistake. B treats the goods as his own. He is bound to
pay A for them.

(b) A saves Bs property from fire. A is not entitled to compensation from B, if the circumstances show
that he intended to act gratuitously.

Conditions of Liability under the section:-

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The condition on which the liability under this section arises would be:-

a) A person should lawfully do something for another person or deliver something to him;

b) In doing the said thing or delivering the said thing he must not intend to act gratuitously; and

c) The other person for something is done or to whom something is delivered must enjoy the
benefit thereof.

1) Not intending to do so gratuitously

The person who has done something for another voluntarily and yet with the thought of being
reimbursed. He should have contemplated being paid from the very beginning. in Municipal council,
Rajgarh v. MPSRTC[17] it was held that the Municipal Council which constructed and maintained a
bus stand was allowed to recover some charges from bus operators who used the stand though there
was no agreement to that effect.

A university could not escape liability to pay a lecturer who served the institution based on the
appointment of the V.C , which was not sanctioned by the State [ Shyam Behari Prasad v state of bihar
(1991)]

2) Choice of rejection

Secondly the person to whom the act is done is not bound to pay unless he had the choice to reject the
services. If a person delivers something to another, it would be open to the latter to refuse to accept
the thing and return it/: in that case section 70 would not come into operation. In other words, the
person said to be liable under section 70 always has the option not to accept the thing. It is only where
he voluntarily accepts the thing or enjoys the work done that the liability under section 70 arises.

In the application to this principle, the courts have had to strike a balance between two factors.

Firstly, the rule cannot be used by anybody to make officious interference in the affairs of another.
Secondly the court will not compel a person to pay for the services which have been thrust upon him
against his will.

3) Service rendered voluntarily

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Yet the third necessity is that services should have been rendered without any request. Reasonable
compensation may, however, be recovered for the services rendered at request. This has been so held
by the Supreme Court in State of West Bengal v. B.K. Mondal & Sons:[19]

Facts of the Case

In this case the plantiff, on the request of an officer of the State of West Bengal, constructed a kutcha
road, guard room. Office and etc. for the use of the Civil Supplies Department of the government. The
State accepted the work but tried to escape the liability under the pretence that no contract has been
concluded in accordance in accordance with the requirements of section 175(3) of the Government of
India Act 1935 (now Article 299 of the Constitution of India). the Contractor finally was forced to use
his luck with the state under Section 70 of this Contract Act, 1872 and finally supreme court held that
the State is liable to reimburse the contractor.

The principle of this case has been reaffirmed by the Supreme Court in Pillo Dhunjishaw Sidhwa v.
Municipal Corporation of the City of Ponna[20]

4) Lawfuuly does:-

Fourthly, services should have been rendered lawfully. It has been a point of emphasis that between the
person claiming compensation and the person, against whom it is claimed, some lawful relationship
must exist and it should arise by reason of the fact that has been done for the former which has been
accepted and enjoyed by the latter.

5) Non-gratuitous acts:-

In the fifth place, the person rendering services should not have intended to act gratuitously. The
decision of the Madras High court in Damodara Mudalair v. Secretary of State for India[21] is the
leading authority. in this case a number of villages were drawing irrigation waters from the tank. Some
of the villages were under the direct state tenancy, other Zamindar. The government carried out repairs
to the tank for its preservation. The Zamindar has also enjoyed the benefit of the repairs.

so it was accordingly held that Zamindar is liable to make proportional contribution towards the
expense of the repairs.

6) Enjoys the benefit:-

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Lastly the defendant must have enjoyed or derived a direct benefit from the payment or services.

As for where no services have been rendered at all, for example where the government cancelled a
lease granted to the plantiff by an officer who was not so authorized, no relief can be allowed under
the section.

71. Responsibility of finder of goods

A person who finds goods belonging to another, and takes them into his custody, is subject to the same
responsibility as a bailee.
72. Liability of person to whom money is paid, or thing delivered, by mistake or under coercion-
A person to whom money has been paid, or anything delivered, by mistake or under coercion, must
repay or return it.

Illustrations
(a) A and B jointly owe 100 rupees to C, A alone pays the amount to C, and B, not knowing this fact,
pays 100 rupees over again to C. C is bound to repay the amount to B.

(b) A railway company refuses to deliver up certain goods to the consignee except upon the payment
of an illegal charge for carriage. The consignee pays the sum charged in order to obtain the goods. He
is entitled to recover so much of the charge as was illegal and excessive.

Mistake of Fact or Mistake of Law:-

Money paid under mistake is recoverable irrespective of the fact that whether the mistake is of fact or
of law. The controversy between the High Court Decisions as to whether money paid under mistake of
law could be recovered was set at rest by the Privy Council in Sri Sri Shiba Prasad Singh v. Maharaja
Srish Chandra Nanadi,[22]

The Payment by Mistake in section 72 must refer to a payment which was not legally due and which
could not have been enforced: the Mistake is on thinking that the money paid was due when in fact,
it was not due. There is nothing in section 72 to relate with that whether the mistake is of law or of a
fact.

Refund of tax money paid without being due:-

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The Supreme Court in its decision in Sales tax Officer, Banaras v Kanhaiya Lal Mukund Lal Saraf[23]
has accepted this interpretation of section 72.

A certain amount of the Sales Tax was paid by a firm under the U.P. Sales Tax Law on its forward
transactions and subsequently to the payment; the Allahabad High Court ruled the levy of the sales tax
on such transaction to be ultra virus. The firm sought to recover back the tax money.

And as far as English, American and Australian Laws and their contentions are concerned they do not
allow the payments made under mistake of law to be recovered.

Coercion:-

The word coercion used in this section is used in the general sense and not as defined in section 15.
Thus the money paid under pressure of circumstances, such as prevention of the execution of a decree
on a property in which the party paying is interested, may be recovered even though coercion as
defined in sections 15 is not established.

Wagering agreements. Contingent contracts.

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1) A wagering agreement is void according to section But the contingent contract is valid except when the
30 subject to some exceptions event becomes impossible under section 32 .

2) Wagering agreement is a game of chance , the On the other hand , contingent contract is not a game
parties have no other interest in the subject matter of of chance but it is a contract to do or not to do
the agreement except winning or losing of the amount something , if some event collateral to such contract ,
of wager . does not happen .

3) In the wagering agreement , the future uncertain In the contingent contract , the future event is only
event is the sole issue . And dependent on the collateral to such contract .
determination of that event .

4 )Wagering agreement is based on reciprocal But a contingent contract may not be based on
promises of the parties . There is mutual agreement of reciprocal promises .
both the parties to give money or moneys worth upon
the determination or ascertainment of an uncertain
event .

5) Wagering agreement is a kind of species of Where as contingent contract is the genus and it may
contingent contract . It has the nature of contingent . not have the wagering nature .
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