View Full Version : The Conract Act, 1872

12-19-2010, 12:58 AM
Preamble: WHEREAS it is expedient to define and amend certain parts of the law relating to contracts; It is hereby enacted as follows:---


1. Short title: This Act may be called the Contract Act, 1872.

Extent and Commencement: It extends to [the whole of Pakistan] and it shall come into force on the first day of September, 1872.

Enactments repealed: Nothing herein contained shall affect the provisions of any Statute, Act or Regulation not hereby expressly repealed, nor any usage or custom of trade, nor any incident of any contract, not inconsistent with the provisions of this Act. (https://www.paksearch.com/Government/CORPORATE/Contract/A1.htm)

Law anterior to Contract Act, Introduction of English Law into India.--- The charters of the eighteenth century which established Courts of justice for the three presidency towns of Calcutta, Madras, and Bombay, introduced into their jurisdictions the English common and statute law in force at the time so far as it was applicable to Indian circumstances. It is, however, a matter of controversy jurisdictions the English common and statute law in force at the time so far as it was applicable to Indian circumstances. It is, however, a matter of controversy whether English law was introduced by the charter of 1726 (13 Geo. I.) so as to extend I o India the statutes passed up to that date only, or subsequently also by the charters of 1753 and 1774 so as to embrace statutes up to 1774.

Introduction of native Law of Contract into India.--- The indiscriminate application of English law to natives of India within the jurisdiction of the Supreme Court led to many inconveniences. To obviate this, the statute of 1781 (21 Geo. III. c. 70. s. 17) empowered the Court at Calcutta (being then the Supreme Court), and the statute of 1797 (37 Geo. III. c. 142, s. 13) empowered the Courts of Madras and Bombay (being then the Recorders' Courts), to determine all actions and suits against the inhabitants of the said towns, provided that their succession and inheritance to lands, rents, and goods, and all matters of contract and dealing between party and party, should be determined in the case of Muhammedans by the laws and usages of Muhammedans,. and in the case of Gentoos (Hindus) by the laws and usages of Gentoos, and where only one of the parties should be a Muhammedan or Gentoo by the laws and usages of the defendant. The effect of these statutes was to supersede English law so far as regards Hindus and Muhammedans in the case of contracts and other matters enumerated in the statutes, and to declare the right of Hindus and Muhammedans to their own laws and usages. The result was that in a suit on contract, for instance, between Hindus, the Hindu law of contract was applied, and the Muhammedan law in the case of a contract between Muhammedans, and this continued up to the enactment of the Indian Contract Act.

Native Law of Contracts as administered by High Courts.---- Turning to matters of contract, the Hindu law of contract was in fact applied by the High Courts in the exercise of their original jurisdiction to Hindus, and the Muhammedan law to Muhammendans, up to the passing of the Contract Act in 1872, although the Courts to which the statutes of 1781 and 1797 were applicable had been abolished. The preservation of this jurisdiction appears to be accounted for by the charters of the High Courts. Now, the law or equity applied by the Supreme Court being under the statute of 1781 the Hindu law of contract to Hindus, and the Muhammedan law of contract to Muhammedans, the provision in that statute for applying the native law of contract to natives became incorporated by implication in the charters of 1862 as well as 1865, and in this manner that provision came to have effect in the High Court. The Indian Legislature had, therefore, the power to alter by legislative enactment the provisions of cl. 19 of the charter, and this is done in the case of contracts by the Contract Act. The result is that notwithstanding the provisions of cl. 19 of the Charter of 1865, which directs the High Court to apply the same law or equity that would have been applied by the Supreme Court (i.e. to apply, inter alia, the native law of contract to natives), the High Court has now to administer the law as laid down in the Contract Act, whether the parties to the suit be Hindus, Muhammedans, or otherwise. In other words, the "law or equity" required to be administered by the High Court under cl. 19 of the amended Letters Patent is, in matters of contract, modified by the Contract Act and other enactments relating to particular contracts. Subject, however, to any law made by the Governor-General in Council, the High Courts are still bound, in the exercise of their ordinary original civil jurisdiction, to apply the native law of contract to natives as comprised in the expression "law or equity" in cl. 19.

Applicability of the Act.--- The second clause of s. 1 of the Act says in the most general terms that the Act is to extend to the whole of Pakistan. These words are large enough to include all Courts and persons of all denominations. The third clause of S. 1 provides that nothing contained in the Act shall affect the provisions of any statute not thereby expressly repealed. The schedule of the Act enumerates the enactments repealed by the Act, but this enumeration does not include the provision in the statutes of 1781 and 1797 directing Hindu law to be applied to Hindus and Muhammedan law to Muhammedans.

Scope of the Act.--- The Contract Act does not profess to be a complete code dealing with the law relating to contracts. As appears from the preamble, the Act purports to do no more than define and amend certain parts of that law. No doubt it treats of particular contracts in separate chapters, but there is nothing to show that the Legislature intended to deal exhaustively with any particular chapter or subdivision of the law relating of contracts.

In Ramdas v. Amerchand & Co. the point (https://www.paksearch.com/Government/CORPORATE/Contract/A2.htm) for decision was whether a railway receipt was an "instrument of title" within the meaning of s. 103 of this Act. It was contended that it was not, for the following reasons; First, that the Indian Contract Act was primarily a consolidating Act, and therefore ought, in default of a clear expression to the contrary, to be read as embodying the law as existing when it was passed. Secondly, that it was improbable that the Indian Legislature could have taken the lead in a legal reform for which England had to wait until the passing of the English Factors Act of 1877. In dealing with these arguments, the Privy Council said: "Their lordships cannot attach any weight to either consideration. The Contract Act recites the expediency of defining and amending certain parts of the law relating to contracts. It is therefore an amending as well as a consolidating Act, and beyond the reasonable interpretation of its provisions there is no means of determining whether any particular section is intended to consolidate or amend the previously existing law. Again their lordships do not see any improbability in the Indian Legislature having taken the lead in a legal reform. Such a reform may have been long recognized as desirable without an opportunity occurring for its embodiment in a legislative enactment, and it may well be that the opportunity occurred sooner in India than in this country, where the calls for legislative action are so much more numerous."

How far native Law of Contracts is still in force.---- As stated above, the Contract Act does not cover the whole field of contract law. In ,cases, therefore, not provided for by the Contract Act or other legislative enactments relating to particular contracts, it is incumbent upon the High Courts, in the exercise of their original jurisdiction, to apply the Hindu law of contract to Hindus and the Muhammedan law of contract to Muhammedans. As an instance of the above proposition may be mentioned the rule of the Hindu law of contract known as damdupat, according to which interest exceeding the amount of the principal cannot be recovered at any one time. There is, however, (https://www.paksearch.com/Government/CORPORATE/Contract/A3.htm) a difference of opinion as to whether the rule is abrogated by the Transfer of Property Act, 1882, as regards interest on mortgages governed by that Act.

Saving of usage or custom of trade, etc.--- The term "usage of trade" is to be understood as referring to a particular usage to be established by evidence, and perfectly distinct from that general custom of merchants which is part of the law of the realm and is to be collected from decisions, legal principles, and analogies, and, according to the opinion now received, can still be increased by proof of living general (not merely local) usage. Such a usage remains unaffected by the provisions of the Act, even though it may be inconsistent with those provisions. Both the reason of the thing and the grammatical construction of the section require that the words "not inconsistent with the provisions of this Act" should not be connected with the Clause "nor any usage or custom of trade," and apply only to the immediately preceding words "nor any incident of any contract," This view was taken by the Privy Council in Irrawaddy Flotilla Co. v. Bugwandas. The contrary (https://www.paksearch.com/Government/CORPORATE/Contract/A4.htm) seems to have been assumed by the Bombay and Calcutta High Courts in two earlier cases. Both these (https://www.paksearch.com/Government/CORPORATE/Contract/A5.htm) cases were considered by the Privy Council in the above case. In both these cases, again the opinion was expressed by the Bombay and Calcutta High Courts that the liability of a common carrier under the common law of England, which renders him liable for all loss or damage to goods except when caused by the act of God or the King's enemies, was a "usage of trade," the one Court holding that it was inconsistent, and the other that it was consistent, with the provisions of the Contract Act. In the Privy Council case cited above, their lordships were inclined to the opinion that the liability of a common carrier under the English common law as an insurer of goods was not a usage of trade, but an "incident" of the contract quite consistent with the provisions of the Act. Such an incident is not inconsistent with the provisions of ss. 151 and 152 of the Act, having regard to the words "in file absence of any special contract" occurring in S. 152.

Not inconsistent with the provisions of this Act.--- A stipulation in a contract of guarantee that the surety shall not have the benefit of s. 13 has been held to be inconsistent with the Act. (https://www.paksearch.com/Government/CORPORATE/Contract/A6.htm)

Evidence as to usage of trade.--- In this connection may be noted the provisions of s. 92 (5) of the Evidence Act, 1872, which enacts that, though a contract may be in writing, oral evidence may be adduced to prove any usage or custom by which incidents not expressly mentioned in the contract are usually annexed to contracts of that description, provided that the annexing of such incident would not be repugnant to, or inconsistent with, the express terms of the contract. And further such (https://www.paksearch.com/Government/CORPORATE/Contract/A7.htm) incident should not be inconsistent with the general provisions of the Contract Act, having regard to the words "nor any incident of any contract not inconsistent with the provisions of this Act." This is a reproduction of the English law on the subject. As to the evidence (https://www.paksearch.com/Government/CORPORATE/Contract/A8.htm) necessary to prove a usage of trade, it is enough if it appears to be so well known and acquiesced in that it may be reasonably presumed to have been an ingredient imported by the parties into their contract. To prove such a usage, there needs not either the antiquity, the uniformity, or the notoriety of custom in its technical sense; the usage may still be in course of growth, and may require evidence for its support in each case. (https://www.paksearch.com/Government/CORPORATE/Contract/A9.htm)

Section referring to usage or custom of trade.--- S. 190 enacts that an agent cannot delegate his authority to another unless allowed by the "ordinary custom of trade." Similarly an agent is bound, in the absence of directions from the principal, to conduct business according to "the custom which prevails in doing business" of the same kind at the place where the agent conducts such business (s. 211). It may here be observed that the expression "usage or custom of trade" used in s. 1, as well as the sections referred to above, relates to a particular usage as distinguished from a general or universal usage. A general usage pervading all trades has no binding force, if it is inconsistent with the provisions of the Act. A general usage is equivalent to a general law, and no general law or usage in contravention of the general law laid down by the Contract act can be consistent with the validity of the Act itself.

Choice of law governing contract.--- It may be doubtful what law is to be applied to decide on the validity or the interpretation of a contract, or both, as where the contract is made in one jurisdiction and to be performed in another, or is sued on in a jurisdiction where it was not made or to be performed. The Act does not deal with questions of this kind.

Contract for carriage of goods--- Contract Act Applies. A contract for carriage of goods being only a contract is subject to the provisions of the Contract act except to the extent to which there may exist some special provision. In accordance with the Contract Act every contract is to be performed on the date which has been agreed to by the parties, and, in the absence of such a date, within a reasonable time. (https://www.paksearch.com/Government/CORPORATE/Contract/A10.htm)

Dispute in commercial matter--- Not resolveable by law or terms of contract--- Should be resolved by resort to reasonableness. Basically, reasonableness as determined by custom, common practice and current forms is the guiding principle in commercial matters for solving obscure questions and resolving those differences which cannot be satisfactorily solved and resolved with the help of the terms of Contract and relevant provisions of the law. (https://www.paksearch.com/Government/CORPORATE/Contract/A11.htm)

Change in value of foreign currency after date of breach to be disregarded. The nominalistic principle forms part of the legal system of all civilised countries. As a principle, nominalism applies to claims for unliquidated damages not less than two debts. Thus if damages are claimed for breach of a contract to deliver goods in a foreign country, they have to be assessed in the currency of that country and any change in the value of goods or in the exchange value of the currency after the date of the breach must be disregarded. (https://www.paksearch.com/Government/CORPORATE/Contract/A12.htm)

Damages---Actual damages not ascertainable--- Nominal damages may be awarded. (https://www.paksearch.com/Government/CORPORATE/Contract/A13.htm)

Existence of concluded contract---Test of. The question whether the parties had reached a concluded contract or not, is a question of fact to be deduced from the correspondence, and other documentary and oral evidence. The true test for deciding this question is to ascertain whether the parties were of one mind on all the material terms at the time it is said to have been finalised between them and whether they intended that the matter was closed and concluded between them. (file:///D:/Contract/A13.htm)

Execution of--- Must be executed according to mandatory requirement of law or not at all. If the statutory requirement be that the contract should be executed in a particular manner and that requirement is also mandatory, there cannot be the slightest doubt that either the document should be executed in that manner or not all all. (https://www.paksearch.com/Government/CORPORATE/Contract/A15.htm)

Immovable property, contract relating to--- Time is not essence of contract--- Where the defendant is found to have committed breach of contract, it is not obligatory on the part of the plaintiff to prove his willingness to perform it up to the date of filing of the suit and that the plaintiff is absolved from showing that he was ready and willing to perform his part of the contract where the defendant has definitely repudiated the contract or has committed breach thereof. (https://www.paksearch.com/Government/CORPORATE/Contract/A16.htm)

Limitation for claim for costs of work done---Art. 56, Limitation Act applies. (https://www.paksearch.com/Government/CORPORATE/Contract/A17.htm)

Letter of intent---Ambiguous expression---Interpreted against person using it. Held: I have not come across the expression "Letter of Intent" even in the commercial dictionaries, nor was learned counsel able to assist us on the meaning of this expression, although it has been used by the appellant. As the expression "letter of intent" used by the appellant was ambiguous that ambiguity had to be construed against the appellant, because it had used the expression. Secondly, as the expression was ambiguous, the arbitrator was entitled to take into account the conduct of the parties for the purpose of construing this expression as well as the letter. (https://www.paksearch.com/Government/CORPORATE/Contract/A18.htm)

Rescission of contract---Only aggrieved party can make---Party guilty of breach of contract cannot rescind it.

The right of recission of the contract has been always held to vest in the aggrieved party and not in the party guilty of the breach. (https://www.paksearch.com/Government/CORPORATE/Contract/A19.htm)
Rescission of contract and competency to rescind--- Must be pleaded before civil Court only. (https://www.paksearch.com/Government/CORPORATE/Contract/A20.htm)

Sale of goods---Deviation from approximate contracted quantity should not be more than 5 %.----When word 'about' or 'thereabout' or 'approximate' is used in connection with quantity, the consensus of judicial opinion is that the deviation from the contracted quantity should not be more than three to five per cent. (https://www.paksearch.com/Government/CORPORATE/Contract/A21.htm)

Breach of contract---Which party is guilty of---Question of fact---No interference with concurrent finding of fact. (https://www.paksearch.com/Government/CORPORATE/Contract/A22.htm)

Consideration for contract of marriage---Lawful consideration---Enforceable---There is nothing wrong in giving one's sister in marriage in consideration for inter alia payment of a specified amount for the benefit of the divorce in case the wife is divorced. Such consideration or condition is neither unreasonable or against public, nor defeats the provision of any law. (https://www.paksearch.com/Government/CORPORATE/Contract/A23.htm)

Interpretation of---Plain meanings of words should be given effect to. It is the duty of the Courts to give effect to the meaning of a contract or an offer, however, far-fetched, provided the meaning is plain. If an offerer seeks to attach unsual conditions to his offer, he must do so in plain words and not by a side wind so to say. (https://www.paksearch.com/Government/CORPORATE/Contract/A24.htm)

Stipulation not expressly stated in contract---Cannot be held to be implied by Court. A stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be a reasonable thing to imply it. Such an implication can be made only if, on a consideration Of the terms of the contract in a reasonable and business like manner, the Court is satisfied that it should necessarily have been intended by the parties when the contract was made. (https://www.paksearch.com/Government/CORPORATE/Contract/A25.htm)

Term in contract---Deemed to be implied only when parties so intended---Court cannot introduce new terms as implied in contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A26.htm)

Arbitration clause in contract---Contract cancelled---Arbitration clause may still be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/A27.htm)

Void and voidable clauses in contract not separable---Entire contract is not enforceable. (https://www.paksearch.com/Government/CORPORATE/Contract/A28.htm)

Application of law to contract---Terms of contract would determine. The application of a law in relation to a contract is ordinarily to be governed by the terms of the contract between the parties and the question whether one or the other law applies normally arises when the contract is silent. (https://www.paksearch.com/Government/CORPORATE/Contract/A29.htm)

Carrier exempted from liability in case of damage resulting from negligence---Contract ineffective---Liability may be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/A30.htm)

Contractor aware of schedule of rates in force---Cannot ask for higher rates after completion of work---concession given to contractor by Government---Not enforceable. The plaintiffs contractors were not only fully aware of the rates which existed on the date when they put in the tender but also submitted the tender fully accepting the rates as then existing. Any subsequent change in the schedule of rates would obviously be not applicable to the plaintiffs in respect of their contract. Any gratuitous concession in this respect by the Department concerned in favour of the contractors at any particular point of time after the work under the contract had already been executed, is not legally enforceable in a court of law, either by way of admission, estoppel or otherwise. (https://www.paksearch.com/Government/CORPORATE/Contract/A31.htm)

Proposal for sale made and accepted---Sale subject to consent by Central Board---Contract of sale not complete till consent given. (https://www.paksearch.com/Government/CORPORATE/Contract/A32.htm)

Sale of immovable property---Time is not of the essence of the contract. In contracts relating to immovable property, time is not of the essence of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A33.htm)

Service contract entered into outside Pakistan---Pakistan Courts have no jurisdiction to enforce it. (https://www.paksearch.com/Government/CORPORATE/Contract/A34.htm)

Contract not performed within time by one party---Other party cannot unilaterally extend time---Remedy open to such party. The Court refused to accept the proposition that failure of the part of the appellant to make proper delivery gave a right to respondent to unilaterally extend the time within which the contract was to be performed. Such extension could only be made by mutual agreement and not by unilateral act of a party. The only course open to the aggrieved party if other party does not agree to extension of time is to claim damages. (https://www.paksearch.com/Government/CORPORATE/Contract/A35.htm)

Extension of time by one of several vendees---Binding on other vendees. (https://www.paksearch.com/Government/CORPORATE/Contract/A36.htm)

No period for performance of contract fixed---Contract must be performed within reasonable time. The agreement between the parties did not specify the date on or the period within which the contract was to be perfumed, it was required to be performed within a reasonable time. What is "reasonable" time must necessarily depend upon the facts and circumstances of each case, including in the case of a commercial contract for the sale of goods, the usage of the trade, the nature of goods, the place and mode of delivery and whether the goods are already available with the seller and in a deliverable stage or have to be manufactured or acquired by the seller or put in deliverable state. (https://www.paksearch.com/Government/CORPORATE/Contract/A37.htm)

No time fixed for performance of contract---One party may fix time by notice provided it is reasonable. In the case of mercantile and commercial contracts for sale of specific ready goods, where no time has been specifically fixed, it is permissible for one of the parties, by notice, to fix the time for the performance of the contract provided such time is reasonable. (https://www.paksearch.com/Government/CORPORATE/Contract/A38.htm)

Wagering contract---What is---Not enforceable. A wagering contract is one by which two persons mutually agree that on determination of a future uncertain event one shall win from the other and the other shall pay a sum of money, there being no other real consideration for the making of such contract. In cases of such contracts the intention of the parties is to be determined as a question of fact. It is to be seen whether actual delivery of the goods is contemplated or only the differences are required to be paid. All contracts by way of gaming or wagering are void and no action can be brought by the winner on a wager, either against the loser or the stakeholder to recover what is alleged to be won. (https://www.paksearch.com/Government/CORPORATE/Contract/A39.htm)

Privity of contract---Order placed by defendant in Pakistan to plaintiff (foreign company) for supply to defendant's foreign associate---Defendant's letter showing that defendant was not merely a post office or an indenting agent so as to escape personal liability---Held: there was privity of contract between plaintiff and defendant entailing liability to defendant for supply by plaintiff to defendant's foreign associate. (https://www.paksearch.com/Government/CORPORATE/Contract/A40.htm)

Question whether or not the' is of essence of a contract---Gives rise to a controversy of fact determinable from attendant circumstances of each case and on intention of parties gatherable from agreement itself and subsequent conduct of parties---Decree for specific performance can be refused even if time was not of the essence of contract but other reasons like plaintiffs delay in performance of contract justify such a refusal. (https://www.paksearch.com/Government/CORPORATE/Contract/A41.htm)

Plea that time was not of essence of contract for sale of immovable property---Cannot but lead to grave injustice in some cases---Such a plea should not be readily entertained or given effect to, especially in claims for discretionary relief like suit for specific performance of contract (https://www.paksearch.com/Government/CORPORATE/Contract/A42.htm)

Examination of goods---Goods contracted to be supplied after examination by one person---Supplied after examination by another---Seller guilty of breach of contract. Where there was a contract to the effect that goods would be supplied after examination by one person but were supplied by the seller after getting them examined by another person.

Held: The defendant was quite justified in law to stop the payment when he discovered the mistake that the inspection had not been done in accordance with the terms and conditions of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A43.htm)

Carriage of goods by Sea---Shipper by negligence not unloading cargo at time of first call at port---Damages may be claimed by shipper---Calculation of damages. Where the carrier did not, because of negligence in loading of cargo, discharge it at K when he called at the port but subsequently transhipped the goods to K. The shipper thereupon claimed damages on the ground that due to late delivery he had to purchase the goods in the local market to supply to the Government under a contract previously entered into. Held: A carrier owes a duty to the shipper to show that skill which is normally expected of a person in that skilled profession. Where a carrier performs a loading in a manner which was bound to cause considerable delay in the discharge of the cargo of the shipper and which might necessitate the return of the ship to the port to which the shipper's cargo was destined or which might involve the carrying away of the shipper's goods to a destination far and distant, he cannot be said to have acted with the standard of care which is required of a carrier. In failing to perform his duty with the skill required of him the carrier must be held to have acted negligently. That being so, he cannot then fall back upon the exception clauses in extenuation of his action, which was necessitated due to the carrier's own negligence at an earlier stage. Therefore he is liable for damages. But as at the time when the contract was made the special circumstances that these imports were being made under a special licence for the supply .of bars to the Ministry of Defence within a certain time was not made known to the carrier. Therefore no claim for damages can be based on those special circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/A44.htm)

Currency in which obligation is to be discharged---To be determined from the date of contract. "It is as at the date of the contract that it must be decided what currency is meant by the contract as the currency or measure of value in which the contract obligation is to be discharged." (https://www.paksearch.com/Government/CORPORATE/Contract/A45.htm)

Contract with Government---Must be entered into proper form---Unenforceable if the officer executing is not authorised to do so. Where the requisitioning authority gave alternate accommodation to the person occupying the requisitioned premises and it was contended that there was a contract between K and the Government to provide him with that accommodation so that the Government could not ask him to vacate it.
Held: S. 176 of Government of India Act provides a particular methods by which a contract should be made with the Govt. In this case no formal document was executed. The plaintiff has merely relied on the assurance given by the Accommodation Authority. The Government, however, is not bound by the said assurance as it was not expressed to be made by the Governor. It is well settled that, when a statute provides a particular methods by which a contract should be made there must be compliance with the provisions of the statute. (https://www.paksearch.com/Government/CORPORATE/Contract/A46.htm)

Contract with Government----Not in the form prescribed by statute---Government not bound by contract. S. 175 (3) Government of India Act, 1935, Provides a particular method by which a contract should be made with the Government. In this case no formal document was executed. The plaintiff has merely relied on the assurance given by the Accommodation Authority. The Government, however, is not bound by the said assurance as it was not expressed to be made by the Governor. It is well settled that, when a statute provides a particular method by which a contract should be made, there must be compliance with the provisions of the Statute. (https://www.paksearch.com/Government/CORPORATE/Contract/A47.htm)

Contract with Central Government---Not expressed in G.G.'s name---Invalid. As the contract was not expressed in the name of the G.G. although Central Government was a party to it. It was contended in objection that there is no contract between the parties as contemplated by section 175 of the Government of India Act which requires that the contract should be expressed to be made by the Governor-General.
Held: The contract entered into by the Governor-General must ex-facie show that the provisions of section 115 of the Government of India Act had been complied with, that is, "the contract is expressed to be made by the Governor-General", in that "it is executed on behalf of the Governor-General" and that "it is executed by a person who is authorised or has been directed by the Governor-General to execute it." Therefore, the objection was upheld and the contract was declared invalid. (https://www.paksearch.com/Government/CORPORATE/Contract/A48.htm)

Oral contract---If written contract necessary for execution of---Question of construction. By the law of India an oral contract is valid and enforceable; but in such a case it is a question of construction whether the execution of the further written contract is a condition or term of the bargain, or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. (https://www.paksearch.com/Government/CORPORATE/Contract/A49.htm)

Term---When should be deemed to be implied. The Court ought not to imply a term merely because it would be a reasonable term to include if the parties had thought about the matter, or because one party, if he had thought about the matter, would not have made the contract unless the term was included in it. It must be such a necessary term that both parties must have intended that it should be a term of tile contract, and have only not expressed it because its necessity was so obvious that it was taken for granted. (https://www.paksearch.com/Government/CORPORATE/Contract/A50.htm)

Term not expressed contract---When may be considered to be implied. A term may be implied in a contract to repair an intrinsic failure of expression. It is obvious that few contracts exhaustively deal with all possible future contingencies, and that, in a given case, certain important or even fundamental contingencies may have been overlooked which, if the parties had thought of them at the time of making the contract would have been certainly provided for. (https://www.paksearch.com/Government/CORPORATE/Contract/A51.htm)

Written contract---Construction of---Prior negotiations not to be considered. While construing a written contract, the Court will be erring in approaching the question of what formed !he subject matter of the negotiations which proceeded the written contract between the parties without first settling to what extent the contract was so ambiguous as to justify resort to evidence as to the negotiations. (https://www.paksearch.com/Government/CORPORATE/Contract/A52.htm)

Commercial contract---Terms in written party would prevail over slip attached. The written part of insurance policy covered hazardous goods but a slip attached to it did not cover those goods.

Held: It is settled principle in respect of commercial contracts and indents that the written part of it prevails against the printed part in case of any inconsistency. In the present case the written part of the contract which expressly allowed the keeping of hazardous goods in the godown must, therefore, be held to prevail against a warranty which is attached to every policy as a matter of course regardless of the terms of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A53.htm)

Construction of contract should be strict and literal---Goods supplied according, to sample---Number given to goods not essence of contract. Where the contract between the parties was on the following terms.

"Name of the Article---Striped Japanese Printed Pyjama as per sample.

Quality---Japan Striped No. 2002."

It was contended that the plaintiffs had contracted to purchase cloth No. 2002.

Held: It is clear from a mere perusal of the contract that it was not essence of the contract that the cloth should bear No. 2002. It was enough if the cloth was according to the sample and was of the same quality as cloth No. 2002.

Held further: A contract in such cases must be strictly and literally construed and no deviation therefrom should be permitted. (https://www.paksearch.com/Government/CORPORATE/Contract/A54.htm)

Immovable property---Contract for sale of---Construction on of---Court warned against treating time as essence of contract. The tendency of the courts in cases of contracts relating to real property is to lean against a construction which would make time the essence of the contract unless it can be held to be the unmistakeable intention of the parties. (https://www.paksearch.com/Government/CORPORATE/Contract/A55.htm)

Frustruction of contract---How determined. The question whether frustration of contract occurs or not depends on the nature of the contract and on the events which have occurred. It therefore appears to us that in each case the question for consideration will be, "what was the common intention and a common purpose for entering into a contract and whether that purpose and intention has been frustrated by supervening circumstances" and it is not permissibe for a Court of law to imply a term which is not consistent with the express terms of the contract merely on the ground that parties being reasonable men must be deemed to have provided for a particular event. (https://www.paksearch.com/Government/CORPORATE/Contract/A56.htm)

Suit for breach of contract---Where may be filed. The suit on a breach of contract can be filed at any place where the contract should have been performed in whole or part, and even in so far as the price of the goods in the present case was payable at Karachi, the Karachi Courts would have jurisdiction to entertain the suit. (https://www.paksearch.com/Government/CORPORATE/Contract/A57.htm)

Contractors facing difficulties in performance of contract due to change of circumstances---Work started by contractor when Executive Engineer recommended 12 % rise in tender rates.---If Department bound by recommendation. The Contractor was unwilling to work at the tender rates. The X.E.N. recommended that the rates be raised by 12 %. On this assurance the contractor began the work. After a year of the recommendation the department informed the contractor that the recommendation had not been accepted.

Held: The contractor began the work at his own risk and in my opinion the conduct of the Department in rejecting his claim after the lapse of about one year is not such on which the rule of estoppel can be applied. This contention is without force and in my opinion the defendants are not estopped from challenging the claim of the plaintiff in this respect. (https://www.paksearch.com/Government/CORPORATE/Contract/A58.htm)

Earnest money---What is. Earnest money is part of the purchase price when the transaction goes forward. It is feited when the transaction fall through by reason of the fault or failure of the purchaser. (https://www.paksearch.com/Government/CORPORATE/Contract/A59.htm)

Refund of earnest money---Willingness of buyer to complete contract---Irrelevant. The question of readiness and willingness on the part of the buyer arises only in cases for the specific performance of the contract or for damages for breach thereof. It does not arise where the suit is only for the recovery of the earnest money. The question of the refund of the earnest money or forfeiture of the earnest money depends entirely on the question whether the purchaser or the seller was responsible for the breach of the Contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A60.htm)

Death of partner---Continuation of partnership after death---How would be inferred. Held: That implied contract excluding dissolution by death of a partner may be inferred from the circumstances of the case. (https://www.paksearch.com/Government/CORPORATE/Contract/A61.htm)

Agreement to purchase---Price unpaid by vendor---If vendor entitled to pay interest on unpaid money. Held: If the plaintiff succeeds in his claim that the contract should be specifically performed not only as to the shares but also as to the fruit they have borne while the price remained unpaid, he cannot claim a fair measure of the profit earned or the expense saved by reason of the price being unpaid without denying the vendors a correlative equity and ignoring the quality and character of the relief which he has sought. (https://www.paksearch.com/Government/CORPORATE/Contract/A62.htm)

Clause excepting from of limiting liability---How should be contracted---Such limiting or excepting should be express. In a case from Lower Canada, the Privy Council held; that if the contracting party wanted to limit his liability in respect of negligence, he must do so in clear terms in the absence of which the clause is construed as relating to a liability not based on negligence.

The duty of a Court in approaching the consideration of such clauses may be summarised as follows :---

(1) If the clause contains language which expressly exempts the person in whose favour it is made (hereinafter called the "Proferns") from the consequence of the negligence of his own servant, effect must be given to that provision.

(2) If there is no express reference to negligence. The Court must consider whether the words used are wide enough, in their ordinary meaning to cover negligence on the part of the servants of the proferns. If a doubt arises on this point, it must be resolved against the proferns in accordance with Article 1019 of the Civil Code of Lower Canda: "In cases of doubt the contract is interpreted against him who has stipulated and in favour of him who has contracted the obligation."

(3) If the words used are wide enough for the above phrase the Court must then consider Whether "the head of damage may be based on some ground other than that of negligence." The "other ground" must not be so fanciful or remote that the proferns cannot be supposed to have desired protection against it; but subject to this qualification which is no doubt to be implied from Lord Green's words, the existence of a possible head of damage other than of negligence is fatal to the proferns even if the words used are prima facie wide enough to cover negligence on the part of his servants. (https://www.paksearch.com/Government/CORPORATE/Contract/A63.htm)

Doctrine of mutuality---Not to be extended beyond the provisions of Contract Act. The doctrine of mutuality cannot be extended outside the provisions of the Contract Act or other relevant enactment. (https://www.paksearch.com/Government/CORPORATE/Contract/A64.htm)

Restriction sale of car---Covenant that if the car was sold before 2 years of the purchase the seller would pay pound 1000 to the dealer as compensation---Penalty---Not recoverable. Where the buyer of a Chevrolet moter car covenanted with the dealer that he will not during the space of two years after the delivery of the vehicle to him transfer the same by sale, mortgage, etc. to third persons, in case of breach of which covenant, he was to pay to the dealer "as and by way of liquidated damages and not as a penalty" the sum of pound 1,000.

Held: That the amount stipulated was a penalty and was not recoverable. (https://www.paksearch.com/Government/CORPORATE/Contract/A65.htm)

Agency of oil company---No clause in contract about notice before termination---If agency can be terminated without notice. The plaintiff was provisionally appointed a dealer of an oil company, but his appointment was abruptly cancelled without any notice to him, and the petrol pump was not given to him on the appointed days.

Held:It could not have been in the contemplation of the defendant either that the parties were free to abruptly terminate the agreement without any notice and that, on the other hand, both of them must have, on account of the very nature of the business regarding which they were contracting, contemplated that the agreement between them could be terminated only after a fair and reasonable notice. (https://www.paksearch.com/Government/CORPORATE/Contract/A66.htm)

Mutual obligation in contract---Contract is considered performed only when respective obligations have been fulfilled. A contract which places mutual obligations on the contracting parties cannot be treated as wholly executed until the respective obligations have been discharged. Thus, in a contract for the supply of goods the contractor has to make the supplies and the other contracting party has to make payments for the said supplies and until the payments have been made the contract is not at an end and the liability arising under the said contract is still subsisting. If the contract has been wholly performed, that is to say, the supplies made and payments received, then there is nothing outstanding and no question of any liability occurring thereunder arise. (https://www.paksearch.com/Government/CORPORATE/Contract/A67.htm)

Executory contract---When can be resiled from---Position of parties discussed. If the contract is not yet performed or is merely an executory contract, then one of the parties may resile from his agreement subsequently, and may, in such circumstances, recover money paid in consideration thereof upon the repudiation of the contract as upon a failure of consideration. But if the illegal purpose or any material part of it has been performed, then the money paid cannot be recovered, for the parties in such cases must be held to be equally at fault, and the rule is that in cases where the parties are in 'part delicto' to position of the defendant is always better. (https://www.paksearch.com/Government/CORPORATE/Contract/A68.htm)

Benefit of contract passing to more than one person after the contract---Contract not split up---Default in payment to one party is considered default as to the agreement as a whole. The plaintiff agreed to let his land to one party and promised that she would not eject him if he continued to deliver the agreed quantity of grain. The plaintiff sold a part of the !and to another person. Thereupon the defendant made default in payment.

Held:If the benefit and burden of a contract should by transfer or by operation of law pass to more than one person, the contract is not split up and such persons do not become independents promisees. They together constitute a party to the contract and a default in respect of any of them is a default in relation to the agreement.

Therefore the default amounted to a breach of the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/A69.htm)

Stipulation binding each party---Reasonable diligence should be used for the performance of it. Where the purchaser's contract to purchase was subject to his obtaining import licence, and on his not obtaining it he was used for damages.

Held: A stipulation binding each party to use reasonable diligence to obtain the licence requisite for the fulfillment of his part of the bargain should be implied. But the true construction of the expression "Subject to seller's export licence and to buyer's import licence" raised considerable controversy for the appellant it has said that the words "Subject to" meant "The above obligations are subject to", so that, until the necessary licence had been obtained the sale stipulations of the contract remained inoperative. For the respondent, on the other hand it was contended that the whole contract came into force immediately. The effect of the licence clause being to make it subject to defeasance if, despite all due diligence, either seller or buyer was unable to get the appropriate licence.

The first question to be determined, and on the facts of this case it is the crucial question, is the same, namely, did the appellant use reasonable diligence to obtain an import licence? If he did, the action must fall (whether it be regarded as based on a breach of the implied term or of an operative contract of sale) for it is clear that he never got a licence. If he did not, he is liable in damages unless excused by certain special defences not yet mentioned as, for example, that the contract was a c.i.f. contract and respondent did not tender the requisite documents. (https://www.paksearch.com/Government/CORPORATE/Contract/A70.htm)

Breach of contract---Date of performance is the date of breach of contract. Ordinarily. in a contract for sale of goods the date of the breach of the contract is the date when the contract ought to have been fulfilled but was not and not the date of the refusal of the liability or repudiation of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A71.htm)

Breach of contract---Goods to be supplied in November in bages to be supplied by the buyer---Bags supplied on November 30th---Breach on the part of purchaser. The respondent had to supply the bags ill which the appellant was to supply corn. He supplied the bags on 30th Nov. The corn was not delivered in November. Therefore the respondent brought a suit for breach of contract.

Held: It is manifestly clear that the respondent did not supply the gunny bags for the contract within a reasonable time in order to enable the appellant to fulfill their part of the contract to supply the goods within the month of November, 1951. (https://www.paksearch.com/Government/CORPORATE/Contract/A72.htm)

Time for performance extended by consent of parties---Contract not performed in extended time---When was breach of contract committed. The time for the performance of contract was extended by consent of parties, but the contract was not performed on the appointed day. The question was on which day did the breach of contract occur.

Held: It was open to the plaintiffs-appellants to extend time for delivery and if the defendants accepted the extension and were willing to perform the contract, breach will take place either on the failure of the defendants to perform the contract within the extended time or on their refusal at any earlier time. (https://www.paksearch.com/Government/CORPORATE/Contract/A73.htm)

Time essence of the contract---If party not following time schedule can be required to give further time to the other party. Where time was held to be the essence of the contract but vendee contended that the vendor should be ordered to give further time to it for performing its part of the contract.
Held: To require of the vendor that he should allow reasonable time beyond the fixed period to enable the purchaser to do what he was required to do by the terms of the contract, would amount to making a new contract for the parties, the time was extended. (https://www.paksearch.com/Government/CORPORATE/Contract/A74.htm)

Commercial contract---Terms in accordance with usage of trade may be implied. In a commercial contract a term may be implied in accordance with the usage of the trade or business to which the contract pertains. (https://www.paksearch.com/Government/CORPORATE/Contract/A75.htm)

Sale of immovable property---Time not essence of contract---When should the contract be performed. In contracts relating to immovable property, equity presumes that time is not of the essence of the contract unless expressly made so.

Where one of the clauses of the agreement ran as follows:

"If on the other hand, on account of any fault or default on the part of the lessee, the lease shall not be completed and registered on the day and at the place aforesaid, this agreement shall stand cancelled and the lessee should be liable to consequential damages."

Held: The agreement show that a certain time is mentioned therein for the performance of the contract but it is not expressly stated therein that time is to be deemed to be of the essence of the contract.

The language used in the agreements is not such from which it can be construed that time was regarded as of the essence of the contract, specially when there is nothing in the conduct of the parties previous to the contract which could show that the parties had no other intention.

If this view of the mailer the position was that the parties have the right to have the general contracts performed within a reasonable time and, if there was unnecessary delay by any party the other party could give him notice fixing a reasonable time after the expiration of which he would treat the contract as at an end. (https://www.paksearch.com/Government/CORPORATE/Contract/A76.htm)

Sale of immovable property---Contract stipulating date for performance and also right to cancel in case of non-performance---Time essence of contract. The. mere fixation of a period of the contract, even when coupled with a power to treat the contract as cancelled, in the event of default in performance of the contract within the stipulated time, is not sufficient to make the time fixed the essence of the contract. It seems that something more is necessary to have this effect and where the determination of this question depends only on the language of the conduct. It must be such as would unmistakably exclude the notion that the time limit was merely of secondary importance.

Held further: The tendency of the Courts in cases of such contract relating to real property is to lean against a construction which would make time of the essence of the contract unless it can be held to be the unmistakable intention of the parties. (https://www.paksearch.com/Government/CORPORATE/Contract/A77.htm)

Contract on C.I.F. basis---Obligations of seller---Effect of delivery of documents to buyer stated. In C.I.F. contract it is well established rule that the obligation of the seller is only first to make out an invoice of the goods sold; secondly, to ship at the port of shipment goods of the description contained in the contract, thirdly to procure a contract of affreightment under which the goods will be delivered at the destination contemplated by the contract; fourthly, to arrange for an insurance upon the terms current in the trade which will be available for the benefit of the buyer; and fifthly, with all reasonable despatch to send forward and tender to the buyer these shipping deocuments, namely, the invoice, bill of lading anti policy of assurance. The law is that the delivery of these documents to. the buyer is symbolical of delivery of the goods purchased, placing the same at the buyer's risk and entitling the seller to payment at their price. (https://www.paksearch.com/Government/CORPORATE/Contract/A78.htm)

Contract on C.I.F. basis---Goods lost on way---Seller is not responsible for loss. Under a C.I.F. Contract, the sellers in law had discharged their responsibility by endorsing the documents of title to the goods, namely, the invoice, the bill of lading and the insurance policy in favour of the buyer. If the goods had not been received at destination or had been lost on the way or were transhipped by the shipping company on the way no responsibility for that could be fixed on the seller firm.
Contract on C.I.F. basis---Documents delivered to buyer---Buyer cannot allege non-shipment of goods---Proof of non-shipment must be positive. The endorsees of the bill of lading were estopped in law to challenge the statement in it that the goods had been shipped. At any rate if they wanted to challenge this fact it was necessary and incumbent upon them to disprove it by reliable evidence. Since in the present case no such evidence was led by the endorsee-buyer it was not possible to hold that the goods were not shipped. (https://www.paksearch.com/Government/CORPORATE/Contract/A80.htm)

Sale of goods---Suit for damages and refund of deposit by purchaser---If purchaser must allege and prove that he was prepared to perform his part of the contract. Held: In a suit for damage for breach of contract for sale of goods or for the refund of the amount paid as deposit to the seller by the purchaser, it was not necessary for him to allege and prove that he was ready and willing to perform his part of the contract unless the defendant expressly pleads and puts him to such proof. (https://www.paksearch.com/Government/CORPORATE/Contract/A81.htm)

Sale of goods---Goods not delivered---Damages for breach of contract---How computed. Where the goods contracted to be sold to the plaintiff were not delivered to him and he claimed damages.

Held: The plaintiff was entitled to purchase the goods from the market at the market price and recover the loss from the defendants,

Even if they had not made any purchases they would be entitled to the difference between the market price and the price agreed upon between the parties. In ease of a breach of contract by the seller the purchaser is entitled to make purchases in the market and to recover the difference from the seller. But he is not bound to do so and is entitled to the profit which he would have earned by sale of the goods in the market if the goods had been delivered to him. (https://www.paksearch.com/Government/CORPORATE/Contract/A82.htm)

Extra work beyond the scope of building contract---Employer should pay for, even when he has not given written order for it. The general rule is that where a written order is a condition precedent, if an architect to the knowledge of the employer gives an order for work which the contractor considers to be no part of the contract and refused to execute it without a written order but the architect or the employer requested him to carry it out, it becomes a question of fact whether the. work was within the contract and if it is found to be an extra work the employer would not be permitted to set upto the plea of absence of written orders as it would plainly be fraud on the builder. (https://www.paksearch.com/Government/CORPORATE/Contract/A83.htm)

Building contract---Circumstances changing through fault of one party---The other party must get proper compensation. Due to change of circumstances the contractor had to incur extra expenses for the execution of the contract. The XEN recommended that the rates should be raised by 12 % to meet the exigency but the department rejected the recommendation. In the meantime the contractor had executed the contract.

Held: It appears to me that Courts of law ought to find out whether or not on the terms of the contract the parties have entered into the contract on the footing that if a particular thing and state of things does not continue the contract will be treated as frustrated. I agree that this implied term is not to be spelled in those cases where unexpected turn of event had made it more onerous than had been contemplated but it will certainly apply to those cases where the conditions of contract have so changed due to the fault of the other party that the very basis on which it was entered into had disappeared. If the Court comes to such a conclusion it must hold that it was an implied term of the contract that the defaulting party would compensate the sufferer. This is what is known in law as the Doctrine of Frustration on account of changed circumstances and the injured party is entitled to a fair compensation or quantum merit. (https://www.paksearch.com/Government/CORPORATE/Contract/A84.htm)

Unlawful consideration for divorce---Divorce effective---Husband accepting such consideration cannot take advantage of his own wrong. Where part of the consideration for divorce was withdrawal of a suit against the wife under S. 380, 317 PPC which amounted to stiffling prosecution and the husband brought a suit for restitution of conjugal rights on the ground that the agreement to divorce was based on unlawful consideration and was therefore illegal.

Held: When the parties to a contract are themselves in pari delicto neither of them is entitled to ask any relief from a Court of law. The Court will not come to the aid of either party to retrieve his position. The appeal was dismissed. (https://www.paksearch.com/Government/CORPORATE/Contract/A85.htm)

Bill of ladings---Clause in Bill of ladings about delivery of goods to shippers or their assigns---Goods delivered in contravention of the clause---Liability. Where the clause in the Bill of lading was "unto order or his or their assigns" but the goods were delivered without the bill of lading being produced.

Held: the goods were to be delivered to the order of the shippers, if they had not assigned the bill of lading, or to their assigns, if they had. The shipping company did not deliver the goods to any such person. They are therefore liable for breach of contract unless there is some term in the bill of lading protecting them. And they delivered the goods, without productions of the bill of lading, to a person who was not entitled to receive them. They are therefore liable in conversion unless likewise so protected. (https://www.paksearch.com/Government/CORPORATE/Contract/A86.htm)

Voidable contract---Party exercising option can do so only once---Option exercised in affirmance.--The contract is a full-fledged contract. A voidable contract is one which is enforceable at the option of one party to the contract, but the party can exercise this option only once. If it elects to affirm the contract, it becomes enforceable henceforth at the option of both the parties. The true conception of a voidable contract is that it remains in abeyance till the party that has the option exercises it. It then becomes, if the party approves, a full-fledged contract. (https://www.paksearch.com/Government/CORPORATE/Contract/A87.htm)

2. Interpretation clause. In this Act the following words and expressions are used in the following senses, unless a contrary intention appears from the context :---

(a) When one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal;

(b) When the person to whom the proposal is made signifies his assent thereto, the proposal is said to be accepted. A proposal, when accepted, becomes a promises;

(c) The person making the proposal is called the "promisor," and the person accepting the proposal is called the "promisee".

(d) When, at the desire of the promisor, the promisee or any other person has done or abstained from doing or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration for the promise:

(e) Every promise and every set of promises, forming the consideration for each other, is an agreement.

(f) Promises which form the consideration or part of the consideration for each other are called reciprocal promises:

(g) An agreement not enforceable by law is said to be void;

(h) An agreement enforceable by law is a contract;

(i) An agreement which is enforceable by law at the option of one or more of the parties thereto, but put at the option of the other or others, is a workable contract

(j) A contract which ceases to be enforceable by law becomes Void when it ceases to be enforceable.

Summary of the Section.---This section is understood to be the work of Sir James Stephen. There is nothing like it in the original draft prepared by the Indian Law Commissioners at home, which only laid down in general terms that "a contract is an agreement between parties whereby a party engages to do a thing or engages not to do a thing". As the section stands, its position and, form are open to the remark that it professes to be an interpretation clause, but really declares a considerable part of the substantive law. Moreover, the propositions it lays down are by no means confined to principles of universal jurisprudence, but embody several conceptions which are peculiar to the Common Law, or of peculiar importance in it. We learn from cls. (a), (b), (c) (e), and (f) that an agreement is a promise or a set of reciprocal promises ; that a promise is formed by the acceptance of a proposal; and that there must be a promiser who makes the proposal and a promisee who accepts it. In the case of reciprocal promises each party is a promisor as to the promise he makes and a promises as to that which he receives; he is both proposer and acceptor, proposing to become liable and accepting the other's liability. The mutual proposals of the two parties become promises by mutal acceptance; whatever may have happened before the promises are exchanged is merely preliminary negotiation, and does not enter into the legal analysis of the transaction.

Proposal and Promise.--- The word "proposal" is synonymous in English use with "offer". But the language of these definitions appears to confine "proposal" to an offer to be bound by a promise. Thus a man who offers to sell and deliver, then and there, existing portable goods in his immediate control, such as a book or a jewel, does not offer a promise but an act, and if the other party takes the goods on the spot and becomes liable to pay for them, he (the buyer) is the only promisor. In such a case the seller would seem not to make a proposal within the terms of the Contract Act. But in England no one would hesitate to say that he offers (or proposes, though this word is less usual) to sell his goods. A quotation of prices is not an offer, but an invitation for offer (https://www.paksearch.com/Government/CORPORATE/Contract/A88.htm); the same is true of many common forms of advertisement. A statement of the lowest price at which a landowner is prepared to sell has been held by the Privy Council not to be an offer. A term in a partition (https://www.paksearch.com/Government/CORPORATE/Contract/A89.htm) deed that any of the parties wishing to sell his share will sell to the others at the market value is not an offer but an undertaking to make an offer. (https://www.paksearch.com/Government/CORPORATE/Contract/A90.htm)

The Act does not say, but it seems to imply, that every promise is an accepted proposal. In the Common Law this is not so, for a binding promise may be made by deed, that is, by writing under seal without any communication between the parties at all. This is because the deed, as an ancient formal method of proof, was conclusive against its maker.

Promise and Consideration.--- Again, the technical use of the word "promise" in the Act is far narrower than the popular use. Express words of promise may be and often are in law no more than a proposal. In common (file:///D:/Contract/A91.htm) life many promises are made, and regarded as morally binding between one person and another, without any "view to obtaining the assent of that other" to the contents of the promise. In common speech no one thinks of acceptance by the promisee as being an essential condition which must be satisfied before a declaration of intention amounts to a promise. These elements are embodied in the definition of consideration by cl. (d) of this section. This clause is especially open to the remark that what purports to be interpretation of terms is really substantive enactment. Only in s. 25, however, with partial anticipations in ss. 10, 23, and 24 does it appear for what purpose the notion and definition of consideration have been introduced.

Definition of Consideration.---The terms of the Indian definition must now be examined. They do not appear to follow those of any authoritative English exposition; they expand, with only verbal difference, those of one of the explanations in the Commissioner's original draft. Whether it was so intended by the framers or not, some of the terms are capable, in their literal meaning, of restoring a doctrine which was long ago finally disallowed in England, and, moreover, they have been held to have that effect. We take the material phrases in order.

"At the desire of the Promisor."---The act constituting the consideration must have been at the desire or request of the promisor, as when a person contracts a marriage in consideration of a promise of a settlement. (https://www.paksearch.com/Government/CORPORATE/Contract/A92.htm) As act done at the desire of a third party is not a consideration. Thus a promise by the defendants to pay to the plaintiff a commission on articles sold through their agency in a market constructed by the plaintiff, not at the desire of the defendants, but of the Collector of the place, is void under S. 25, being without consideration. (https://www.paksearch.com/Government/CORPORATE/Contract/A93.htm) Nor can it be supported under el. 2 of that section, which enacts that an agreement without consideration is void, unless it is a promise to compensate a person who has already voluntarily done something for the promisor. The expression "voluntarily" appears to be used in contradiction to the words "at the desire of the promisor". (https://www.paksearch.com/Government/CORPORATE/Contract/A94.htm) In this case, even if the market were not established by the plaintiff at the desire of the defendants, the agreement would be binding, provided it was done by the plaintiff voluntarily for the defendants. The Court, however, found that the market was not constructed by the plaintiff for the defendants so as to bring the case within the provisions of S. 25, cl. 2.

"Or any other person".--- In modern English law it is well settled that consideration must move from the promisee. (https://www.paksearch.com/Government/CORPORATE/Contract/A95.htm) Under the Act, however, consideration may proceed from the promisee or any other person. The result, according to the decisions now to be cited, is to restore the doctrine of some earlier English decisions which are no longer of authority in England.

Past consideration.----In the same clause the words "has done or abstained from doing" call for special attention. They declare the law to be that an act done by A. at B.'s request, without any contemporaneous promise from B., may be a consideration for a subsequent promise from B. to A. Now, the general principle of the common law is that in the formation of a contract the consideration is given and accepted in exchange for the promise. Hence the acceptance of the consideration and the giving of the promise must be simultaneous, and, in order to have the effect of binding the party making it, a request must be the offer of a promise in return for some consideration, which offer will become a promise (if not meanwhile revoked) if and when the consideration is furnished as requested. Thus the consideration must always be present at. the time of making the promise, and there is no such thing as a past consideration. If a service is rendered without any immediate promise or understanding that it is to be recompensed, it is a merely gratuitous act having no legal effect except such transfer of property of the like as may be contained in the act itself. If there be such a promise, express by words or tacit by understanding, to be inferred from the circumstances, there is at once an agreement, in which, if the recompense be not specified, the promise is to give such reward as may be found reasonable. A subsequent promise specifying the reward will not make an obligation where there was none before, but will show what the parties thought reasonable, and there is generally no reason why the parties' own estimate, in a matter which concerns only themselves, should not be accepted. Such a promise "may be treated either as an admission which evidences, or as a positive bargain which fixes, the amount of that reasonable remuneration on the faith of which the service was originally rendered". (https://www.paksearch.com/Government/CORPORATE/Contract/A96.htm) In many common circumstances the fact of service being rendered on request is ample evidence of an understanding that it was to be paid for according to the usual course.

The use of the perfect tense in the clause now under consideration embodies in the law of India the exception to the general rule which is supposed to have been made by the seventeenth-century case of Lampleigh v. Brathwait (A.D. 1615). (https://www.paksearch.com/Government/CORPORATE/Contract/A97.htm) There it was allowed that in general a service rendered without any agreement for reward at the time will not support a subsequent promise of reward---"a mere voluntary courtesy will not have a consideration to uphold an assumption"---but it was said that if the service was "moved by a suit or request" of the promisor, the promise "couples itself with the suit before," or, as we should now say, is held to relate back to the original request, and accordingly is deemed to be made on good consideration.

Courts have here followed, as they were bound to do, the terms of the Act. In Sindha v. Abraham (https://www.paksearch.com/Government/CORPORATE/Contract/A98.htm), the plaintiff rendered services to the defendant at his desire expressed during his minority, and continued those services at the same request after his majority. The question arose whether such services constituted a good consideration for a subsequent express promise by the defendant to pay an annuity to the plaintiff. The agreement was one to compensate for past services, and it wag held that it could be enforced, as the services formed a good consideration within the meaning of this section. The Court was of opinion that the services were intended to be recompensed, though the nature and the extent of the proposed recompense were not fixed until the agreement sued upon was executed by the defendant. If so, there was a contract for reasonable recompense when the services were rendered, and the decision might have been put on that ground alone. It was chiefly rested, however, on the ground that, under the words of the present sub-section, services already rendered at the desire of the promisor and such services to be rendered stood upon the same footing. It would seem that, under the Act, the decision must have been the same on this ground even if the services were rendered at the time gratuitously, though at the desire of the defendant. It was also said that if the services had been rendered without the desire of the defendant the case would be within S. 25 of the Act (see below). As to the conditions of suing in respect of services rendered by the plaintiff voluntarily without any request from the defendant, see S. 25 of the Act. It must be noted here that neither that section nor the clause now before us will enable a person who has purported to bind himself, when not competent to contract (S. 11), to repayment of a loan, to bind himself to it by a new promise when he is competent. (https://www.paksearch.com/Government/CORPORATE/Contract/A99.htm)

"Or does or abstains from doing": Forbearance as Consideration.--- The essence of consideration is that the promisee takes on himself some kind of burden, or "detriment," as the English authorities call it. Where the consideration is a present performance and not a promise (the only case now before us; promise as a consideration will be dealt with under the following words of this sub-section), the detriment may consist either in actually parting with something of value, or in undertaking a legal responsibility, or in foregoing the exercise of a legal right. It is not common experience that the exercise of one's legal rights is always profitable; nevertheless that which the law deems worthy of its protection must be presumed to be of some value. Thus the performance which constitutes a consideration may be negative as well as positive, provided that the promisee's abstinence from exercising a right was undertaken at the request of the promisor. There need not be a total abandonment of the right, or an undertaking to suspend it for a definite time. Such an undertaking, if it exists, is of course not a performance, but a promise, and then the contract is formed by mutual or reciprocal promises.

Where it was agreed at the time of partition that a particular co-sharer should realise arrears of rent due before partition, and distribute the amounts to the other co-sharers in proportion, and the particular co-sharer failed to realise the amounts, it was held that the other co-sharers could claim their share of the rent from him as there was consideration for the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/B1.htm)

There is an element of fiction in some of the cases on forbearance. The consideration in such cases may be executed or executory. If the debtor promises to pay or to give security, and the creditor promises to forbear, there is a bilateral contract and the consideration is executory. If there is a request for forbearance, coupled with a promise to pay or give security, and followed by forbearance, there is a unilateral contract and the consideration is executed. In the cases, however, there is often neither an express request for forbearance nor an express promise to forbear, and if there is to be consideration one or other must be implied.

The difficulty of implying a promise to forbear is that such an implication is often at variance with the facts, and the element of fiction is therefore more apparent.

Compromise.--- The most usual and important kind of forbearance occurring in practice is that which is exercised or undertaken by way of compromise of a doubtful claim. It is a question of some importance within what limits the abandonment or compromise of a disputed claim is a good consideration. But this seems to belong not to the definition of Consideration, but to the substantive law declared in S. 25 of the Act. We shall therefore deal with it under that section.

Apparent forbearance when really an act.--- Actual performance is sometimes apparently passive. A trader exposes his goods for sale, the price being marked or otherwise well known. A customer comes in, takes the object he wants, and gives his name to the trader. The case is common enough. Here a captiously literal person might say that the consideration on the trader's part is forbearing to interfere with the customer's action. But what we do say, both in law and in common sense, is that the seller, by authorising the buyer to take the goods within his reach, in fact sells and delivers them by the buyer's own hand, and the act, though mechanically the buyer's, is in substance the seller's. This remark is needed only when the sale is on credit. If ready money is expected and given, there is no promise at all in the transaction, and therefore no contract; see the commentary on the next following words.

"Or promises to do or to abstain from doing something": Mutual Promises:--- These words, supplemented by sub-ss, (e) and (f), convey in a somewhat indirect and inconspicuous manner the extremely important proposition that a contract may be formed by the exchange of mutual promises, each promise being the consideration for the other. In this case neither promise is of any value by itself, but each of them derives its value from the exchange which makes them both binding. This effect of mutual promises is not a logical deduction from the general notion of consideration, but a positive institution of law required by the convenience of business in civilised life. In many archaic systems of law there is no obligation to perform a promise until there has been performance or at least some act done towards performance on the other side. The widespread custom of giving something by way of earnest "to bind the bargain" is a relic of this view.

A consideration which consists in performance (or so far as it consists in performance) is said to be executed. If and so far as it consists in promise, it is said to be executory. Some writers, especially in America, speak of a contract in which the consideration on one side is executed as unilateral, and of a contract in which it is executory on both sides as bilateral. This terminology is concise and convenient. It is obvious that the consideration cannot be wholly executed on both sides. For where performances, and performances only, are exchanged, of which a sale of goods over the counter for ready money is a familiar example, nothing remains to be done by either party, and there is no promise at all and nothing for the law to enforce.

The proposal to give a promise for a promise is accepted by giving the promise asked for, and thereupon, if there be no special ground of invalidity, the two parties are both bound, each being both promisor and promisee. It does not seem necessary or useful or indeed true to say that the promise of the party who accepts has ever been a proposal, though the language of sub-s. (b) does not seem to recognise the existence of promises which have not passed through that stage. Still it is true that, but for the counter promise or "reciprocal promise" as the Act has it, neither party’s "signification of willingness" could become a promise within the definition of the Act; and in this sense we may say, if we please, that the acceptance of an offered promise, by giving the reciprocal undertaking asked for, has itself the nature of a proposal, though it becomes a promise in the act of utterance, and there is no moment at which it exists merely as a proposal. But it does not appear that anything of practical importance can turn on this.

Promises of forbearance.--- An actual forbearance to exercise a right may be a good executed consideration, provided it be at the promisor's request. So a promise of forbearance may be a good executory consideration. The validity of such considerations, as distinct from their formal definition, will be spoken of, as above mentioned, under S. 25.

"Such act or abstinence or promise is called a consideration for the promise":---Further requirements.--. It will be observed that, according to the terms of the definition, it is only required that something, no matter what, should have been done, forborne, or promised at the request of the promisor. We shall find, however, that in some cases expressly provided for by the Act, and in others apparently not so provided for, but well known in the Common Law, and still recognized in Indian practice, the legal effect of consideration in making promises binding is withheld from acts, forbearances, and promises which arc within the terms of the definition. English lawyers are accustomed to say, in some at least of such cases, that there is no consideration. This way of speaking would seem to be excluded by the Act. One would expect the Act to say somewhere that, in order to have legal effect, a consideration must not only be something which the promisor asked for and got, but must be "good" or "valuable"; that is to say, something which not only the parties regard, but the law can regard, as having some value. This is a fundamental rule in the Common Law.

Sub-ss. (e) to (.j) :---Agreement and Contract.---- The group of sub-ss. (e) to (j) may be considered together. But sub-s. (e) an agreement is either a promise or a group of promises and, therefore, it would seem that an executed consideration is not reckoned as part of the agreement (https://www.paksearch.com/Government/CORPORATE/Contract/B2.htm) This is not according to the current use of language, which treats an agreement as an act of both parties, whether a legal obligation is incurred by one or both of them. A unilateral contract is not the less a transaction between two parties to which both must contribute something. It would not be difficult, however, to find arguments for the language of the Act if .required. Sub-s. (f) agrees with common usage, except that the adjective "mutual" is more common in English books.

The distinction between "agreement" and "contract" made by sub-s. (h) is apparently original ; it is convenient, and has been adopted by some English writers. It should be strictly observed in India, though lapses such as "void contract" sometimes occur. The conditions required for an agreement being enforceable by law are contained in Chap. II of the Act, ss. 10 sqq., below, where it will also be seen that the absence of any such condition makes an agreement void, and certain defects will make a contract voidable. The duties of parties to a contract are set forth in Chap. IV of the Act. The manner in which contracts are, if necessary, enforced belongs to civil procedure.

Proposal---Acceptance---Unconditional appropriation of first premium---Not tantamount to implied acceptance of insurance proposal. (https://www.paksearch.com/Government/CORPORATE/Contract/B3.htm)

S. 2 Qanun-e-Shahadat Order (X of 1984), Art. 118---Breach of agreement---Proof---Suit for recovery of contract amount---Where defendant failed to prove that any breach of agreement was committed by plaintiff justifying stoppage of payment to him, while admitting liability to pay claimed amount, plaintiff held, was entitled to decree of his suit. (https://www.paksearch.com/Government/CORPORATE/Contract/B4.htm)

Agreement to sell---Effect of---Held: Agreement to sell per se not to create title in property---Held further: Such agreement only creating right to obtain another document, no registration of it to be required even though it contains acknowledgment of receipt of earnest money or part payment of price. (https://www.paksearch.com/Government/CORPORATE/Contract/B5.htm)

Interpretation of documents---Arbitration agreement---Contract---Arbitration agreement essentially a contract. and to be governed by same rules in matter of interpretation as apply to construction of contract---Contract to be construed in harmoneous manner and each part to be construed in harmony with other parts so that a rational meaning be given to all parts of contract. (https://www.paksearch.com/Government/CORPORATE/Contract/B6.htm)

Constitution of Pakistan, 1973, Art. 199---Allotment of plots in housing project---Terms and conditions set forth in a document signed by parties---Document containing terms and conditions whether a "contract"---Constitutional jurisdiction of High Court whether exercisable for breach of terms of contract---Document offering plots for construction of houses containing therein memorandum of acceptance, setting forth terms and conditions for allotment of plots---Such a document, held, would have all the characteristics and necessary ingredient of a contract between parties---Allotment order relating to plots was nothing but a contract which came into being as a result of offer by Government to sell and acceptance by allottees---Where scheme for allotment of plots had not been framed or issued in pursuance to any statute or statutory Rules, same could not be enforced as statutory rules or instruments in constitutional jurisdiction of High Court---Rights and obligations arising from and connected with contract between parties could not be enforced in constitutional jurisdiction as remedy therefor was in a civil Court under ordinary law---Term "aggrieved person" would have no relevancy in the context of a case where breach of contract was to be adjudicated---Petition being devoid of merit was dismissed in circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/B7.htm)

Power to increase rates unilaterally given by contract---Such increase cannot be challenged as improper. (https://www.paksearch.com/Government/CORPORATE/Contract/B8.htm)

Void and voidable---Meaning---Distinction stated. There is a clear distinction between things "void" and "voidable" though the two terms arc not infrequently used without special regard for the difference or distinction particularly where such distinction is of no consequence or where the attention of the Court is not particularly directed to this distinction. The expression "void" in the strict or accurate sense means "absolutely null" that is to say incapable of ratification or confirmation and of no effect whatever. The word "voidable" on the other hand is something which could be avoided or confirmed and which is not absolutely void. In other words what is voidable has some force or effect, but which may be set aside or annulled for some error or inherent vice of defect. "Thus that which is voidable operates to accomplish the thing sought to be accomplished until the fatal vice in the transaction has been judicially ascertained and declared." A common place instance of a void act or transaction in the sense of an absolute nullity is an agreement by a person under a legal disability, e.g. a minor or a person of unsound mind. Such act is void ab initio and is incapable of ratification or confirmation. Law forbids the enforcement of such a transaction even if the minor were to ratify it after attaining majority. This is clearly distinguishable from a case in which a thing or an act is "relatively void" which the law condemns as wrong to the individual concerned who can avoid it by appropriate proceedings. A common-place instance of such transaction is that which is brought about by undue influence, fraud, etc. which remains of full effect unless avoided by appropriate proceedings. (https://www.paksearch.com/Government/CORPORATE/Contract/B9.htm)

Insurance contract---Proposal not accepted formally and no first premium receipt issued---Insurance contract does not come into effect. (https://www.paksearch.com/Government/CORPORATE/Contract/B10.htm)

Contract void under S. 2 (g)---Party may claim compensation under S. 65. In the event of the contracts being found to be unenforceable or, in other words being 'void' within the meaning of section 2 (g) of the Contract Act, the plaintiff could claim compensation in terms of section 65 of
the Contract Act. (https://www.paksearch.com/Government/CORPORATE/Contract/B11.htm)

Promise---When enforceable---Person resigning in response to general offer by employer to give financial benefits to persons voluntarily resigning---Resignation not accepted---No breach of contract. It is only a promise supported by a consideration which becomes a contract under our laws. Where file plaintiff employee had submitted his resignation in response to an alleged scheme introduced by the employer containing substantial financial benefits for persons resigning voluntarily. The employer, however, did not accept the resignation of the plaintiff. It was contended on behalf of the plaintiff that file alleged scheme being an offer, as soon as the resignation of the plaintiff in response thereto was received by the employer it created a legal contract binding upon the employer. Held; In submitting his letter of resignation the plaintiff did not act to his detriment, and this letter cannot be treated as consideration on his part so as to bind the employer. (https://www.paksearch.com/Government/CORPORATE/Contract/B12.htm)

Agreement to sell---No interest created in immovable property. An agreement to sell does not create any right, title or interest in immovable property. (https://www.paksearch.com/Government/CORPORATE/Contract/B13.htm)

Agreement to make gift of house to bride by father of bridegroom on her contracting marriage with his son---Marriage contracted---Bride may enforce contract. Such agreements are frequently made in Muslim families in this part of the country between the parents and guardians of the parties to the marriage and it would occasion serious injustice if a person in the position of the plaintiff is not allowed to take advantage of the provisions of such an agreement on the ground of her not being a party to it. (https://www.paksearch.com/Government/CORPORATE/Contract/B14.htm)

Agreement discovered to be void---Effect. The term "agreement" has not been used as being synonymous with the term 'contract' in this section. An agreement, which by its very nature was void from its inception, would still attract the consequences which this section provides if after the agreement is made it is discovered to be void. (https://www.paksearch.com/Government/CORPORATE/Contract/B15.htm)

Consideration---Meaning of---Deposit of money for safe custody not an act without consideration. In the eye of law, consideration would mean and include some right," interest, profit or benefit accruing to one party and some forbearance, by the other. Thus where a person deposited money with another for safe custody till such time that he buys, a rickshaw. Held: In the eye of law forbearance on the one side and acceptance of responsibility on the other, is sufficient consideration to constitute Contract. (https://www.paksearch.com/Government/CORPORATE/Contract/B16.htm)

Grant of scholarship to student by University---Not a contract. Scholarship was granted to a student by the University but it was withdrawn later on because another student was found to have stood first in the examination as a result of scrutiny of results and re-marking of papers. It was contended that the scholarship, was a contract and the University could not withdraw the offer.

Held: This is not a contract.

Firstly, a contract is an agreement which can be enforced by law, and if the University decided not to give any scholarship, how it can be forced to give it? The argument that a gift in contemplation becomes a contract when it goes beyond the stage of contemplation, for that is what it comes to, is too unreal to be entertained.

Secondly, the University decides to award scholarship before the actual examination, and the offer that is made after the examination has reference only to the previous decision, when it was not known, who would stand first in the examination. (https://www.paksearch.com/Government/CORPORATE/Contract/B17.htm)

Sporting offer---Not a proposal. As sporting offer made casually and not genuinely by a plaintiff in the course of his cross-examination, in reply to a question put by the counse1 of the opposite party, primarily intended to discharge the burden of proof placed upon him under an issue, cannot be interpreted by any stretch of imagination or language as a "Proposal" within the meaning of section 2 (a) of the Contract Act. (https://www.paksearch.com/Government/CORPORATE/Contract/B18.htm)

Suit or basis of compromise---Compromise must be based on some consideration passing from the party. Where a party to a compromise brought a suit on the basis of the compromise by which he had settled matters pretaining to his claim in the property of a deceased person.

The compromise was rejected by the judges on the ground that the agreement was without consideration.

Held: The question to be determined is whether any consideration moved from the respondent to support the agreement. This depends upon whether the respondent had a bona fide claim to the property which was the subject of the agreement of compromise. (https://www.paksearch.com/Government/CORPORATE/Contract/B19.htm)

Executed and executory contracts---Difference between. An executed consideration consists of an act which forms the consideration---No contract is formed unless and until the act is performed e.g. the payment for a railway ticket, but the act is stipulated for exhausts the consideration" so that any subsequent promise, without further consideration, is merely a nadum pactum---In an executed consideration the liability is outstanding on one side only, it is a present as opposed to a future consideration.

In an executory consideration the liability is outstanding on both sides. It is in fact a promise; one promise is brought by the other---The contract is concluded as soon as the promises are exchanged. In merchantile contracts this is by far the most common variety. In other words, a contract becomes binding on the exchange of valid promises, one being the consideration for the other.

It is clear, therefore, that there is nothing to prevent one of the parties from carrying out this promise at once, i.e., performing his part of the contract, whereas the other party who provides the consideration for the act of or detriment to the first may not carry out his part of the bargain simultaneously with the first party. (https://www.paksearch.com/Government/CORPORATE/Contract/B20.htm)

Mutuality in contract---Absence of---Contract voidable. The clause in contract was, "in the event of dispute of any nature arising in respect of the said goods or the execution of this contract you are always to have the option of cancelling the contract or referring the matter to the Arbitration of one or two merchants and I/we agree and bind myself/ourselves to accept the decision of the Arbitration/Arbitrators as final anti should the Arbitrators not agree they are to appoint an Umpire whose decision shall be final and binding upon the parties, the party at fault to pay the fee or fees."

Held: That as the clause gives right to cancel or to refer to arbitration to one party only the agreement was voidable within the meaning of section 2 (1) of the Contract Act and therefore, cannot be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/B21.htm)

Trust Act (11 of 1882), S. 94---Civil Procedure Code (V of 1908), S. 115---Contract in form of compromise in favour of stranger---Enforcibility---Compromise arrived at between parties to contract that respondent, a party to contract, shall be bound to sell land in question to petitioner, a stranger to contract---Respondent, held, to trustee qua petitioner and petitioner can file suit against respondent to enforce his right of purchasing land on payment of stipulated sum of money in compromise deed---Finding of Courts below that plaint of petitioner disclosed no cause of action, held further, without jurisdiction and illegal and set aside and case remanded to trial Court for decision of suit on merits. (https://www.paksearch.com/Government/CORPORATE/Contract/B22.htm)

Civil Procedure Code (V of 1908), S. 96---Contract---Collection of octroi (weighment fee) through auction---A valid contract in matter was to come into existence between parties on acceptance of auction---Although auction notice specified that highest bidder had to execute an agreement yet conduct of parties showing that action on contract had started, highest bidder allowed to collect octroi and acceptance, in writing, was only a formality---A valid contract of auction, held, had come into existence between parties in circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/B23.htm)

Contract---Quantum of damages---Proof---Evidence produced by plaintiff to prove quantum of damages neither convincing nor of a reliable nature---Opinion of witnesses on which damages allowed by Court only a bare opinion and not based on any solid ground or fact---Plaintiff had not actually invested any money in performance of his part of contract, his duty under contract was to collect octroi for which he was not required to make any investment---Question that if he had invested money he would have earned a profit, held, hypothetical and meaningless. (https://www.paksearch.com/Government/CORPORATE/Contract/B24.htm)

Specific Relief Act (I of 1877), S. 12---Civil Procedure Code (V of 1908), S. 115---Agreement of sale---Specific performance---Mere inadequacy of consideration, held, no ground for refusing specific performance of contract in respect of immovable properties unless inadequacy was shown to be such which would shock conscience of Court while decreeing suit for specific performance or there were fraud or misrepresentation on part of plaintiff which induced defendant to enter into a contract for sale or there were certain circumstances under which plaintiff took improper advantage of his position or difficulties of defendant making him victim of his imposition. (https://www.paksearch.com/Government/CORPORATE/Contract/B25.htm)

Civil Procedure Code (V of 1908), S. 9---Agreement to sell---Document produced by plaintiff only a sort of receipt acknowledging a sum as earnest money and not showing essential terms of sale consideration, time for completion of sale, payment of balance of sale consideration or anything about delivery of possession of property---Serious doubts existing between parties about sale consideration---Burden of proving sale consideration not discharged by plaintiff who failed to examine witnesses before whom he paid earnest money---Held, since document relied by plaintiff was not mentioning most important term of sale namely sale consideration it could not be said that parties were ad interim or of one mind as to essential term of sale. (https://www.paksearch.com/Government/CORPORATE/Contract/B26.htm)

Fraud---Ab initio valid contract---Subsequent event of adding letter 's' in contract, held, would not turn same to be void or voidable, even if it was assumed that letter 's' was added---Such contract, nevertheless, would remain enforceable in terms of its original condition. (https://www.paksearch.com/Government/CORPORATE/Contract/B27.htm)

Qanun-e-Shahadat Order (X of 1984), Art. 118---Breach of agreement---Proof---suit for recovery of contract amount---Where defendant failed to prove that any breach of agreement was committed by plaintiff justifying stoppage of payment to him, while admitting liability to pay claimed amount, plaintiff, held, was entitled to decree of his suit. (https://www.paksearch.com/Government/CORPORATE/Contract/B28.htm)

Agreement, constitution of---Requirements---To constitute an agreement, it was held necessary that there should be an unconditional offer and same was accepted by competent person/authority giving rise to accrual of right to parties to such agreement---Where a tenderer made an offer to purchase Certain property and attached conditions thereto, an agreement could not come into effect unless conditions were also accepted by Authority issuing tenders---Offer of tenderer having not been accepted by Authority, no right had accrued to such tenderer on basis of his conditional offer. (https://www.paksearch.com/Government/CORPORATE/Contract/B29.htm)

Agreement--Liability under---Agreement for securing cash credit facility and Memorandum of deposit of title deeds signed by predecessor, held, would bind his successors on equitable mortgage of property---Transfer of Property Act (IV of 1882), S. 58. (https://www.paksearch.com/Government/CORPORATE/Contract/B30.htm)

Agreement between debtor and strangers about transfer of business---Effect---Such transfer of business subsequent to borrowing of money by debtor, held, would not bind creditor as to terms of such agreement-Strangers, however, could contest suit on behalf of debtor. (https://www.paksearch.com/Government/CORPORATE/Contract/B31.htm)

Contract---Cancellation of---Political Agent competent to cancel contract at any time without assigning any reason on issuing 15 days prior notice---Contract in case, however, cancelled without giving such notice---Held: Action though improper and wrong, Political Agent not to be said to have acted without jurisdiction, illegally and with mala fide intention. (https://www.paksearch.com/Government/CORPORATE/Contract/B32.htm)

Terms of contract between vendor and vendee specifying action to be taken in case of a breach of terms of contract---Vendor taking action in accordance with terms of contract and taking other coercive measures for recovery of contractual amount as well as damages and fine---Amount due from vendees to extent of balance of purchase money, damage and fine, held could not be recovered because of action having already been taken by vendor in terms of contract. (https://www.paksearch.com/Government/CORPORATE/Contract/B33.htm)

Constitution of Pakistan, (1973), Art. 199---Allotment of plots in housing project---Terms and conditions set forth in a document signed by parties---Document containing terms and conditions whether a "contract"---Constitutional jurisdiction of High Court whether exercisable for breach of terms of contract---Document offering plots for construction of houses containing therein memorandum of acceptance, setting forth terms and conditions for allotment of plots-Such a document, held, would have all the characteristics and necessary ingredients of a contract between parties---Allotment order relating to plots was nothing but a contract which came into being as a result of offer by Government to sell and acceptance by allottees---Where scheme for allotment of plots had not been framed or issued in pursuance to any statute or statutory Rules, same could not be enforced as statutory rules or instruments in constitutional jurisdiction of High Court---Rights and obligations arising from and connected with contract between parties could not be enforced in constitutional jurisdiction as remedy therefore was in a civil Court under ordinary law---Term "aggrieved person" would have no relevancy in the context of a case where breach of contract was to be adjudicated---Petition being devoid of merit was dismissed in circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/B34.htm)

Agreement, constitution of---Requirement---To constitute an agreement, it was held necessary that there should be an unconditional offer and same was accepted by competent person/authority giving rise to accrual of rights to parties to such agreement---Where a tenderer made an offer to purchase certain property and attached conditions thereto, an agreement could not come into effect unless conditions were also accepted by Authority issuing tenders---Offer of tenderer having not been accepted by Authority, no right had accrued to such tenderer on basis of his conditional offer. (https://www.paksearch.com/Government/CORPORATE/Contract/B35.htm)

12-19-2010, 01:04 AM
3. Communication, acceptance and revocation of proposals. The communication of proposals, the acceptance of proposals, and the revocation of proposals and acceptances, respectively, are deemed to be made by any act or omission of the party proposing, accepting or revoking, by which he intends to communicate such proposal, acceptance or revocation, or which has the effect of communicating it.

What is communication?---As the words of this section stand it would seem that some sort of communication of a proposal, etc., is made by an act which is intended to communicate it, but in fact has not that effect, and that such an inchoate communication fails to have legal effect only because the specific provisions of S. 4 prevent it from being complete. It would seem both simpler and more rational to say that an act intended to communicate a proposal, etc., but failing to do so, is not a communication at all. To get this sense from the section before us we should have to read "and" for "or" in the last clause. There are not any corresponding words in the Commissioners’ draft.

It is matter of the commonest experience that the communication of intentions may be effectually made in many other ways besides written, spoken, or signalled words. For example, delivery of goods by their owner to a man who has offered to buy them for a certain price will be understood by every one, unless there be some indication to the contrary, to signify acceptance of that offer. No words are needed, again, to explain the intent with which a man steps into a ferryboat or a tramcar, or drops a coin into an automatic machine. It is also possible for parties to hold communication by means of prearranged signs not being any form of cipher or secret writing, and not having in themselves any commonly understood meaning. This does not often occur in matters of business. Means of communication which a man has prescribed or authorised are generally taken as against him to be sufficient. Otherwise an unexecuted intention to communicate something, or even an unsuccessful attempt, cannot be treated as amounting to a communication; much less can a mere mental act of assent have such an effect in any case. (https://www.paksearch.com/Government/CORPORATE/Contract/B36.htm)

Communication of special conditions.---In recent times there has been a series of cases in which the first question is whether the proposal of special terms has been effectually communicated. This arises where a contract for the conveyance of a passenger, or for the carriage or custody of goods, for reward, is made by the delivery to the passenger or owner of a ticket containing or referring to special conditions limiting the undertaker's liability, and nothing more is done to call attention to those conditions.

If the defendant has established that the document was contractual, he must further prove that he did what was reasonably sufficient to give the plaintiff notice of the conditions. This is a question of fact. It has been held that there is sufficient notice if the face of railway ticket refers to conditions on the back, which are not expressly reproduced, but incorporated by a reference to the time-tables of the railway company; (https://www.paksearch.com/Government/CORPORATE/Contract/B37.htm) But the passenger is not bound by a purported exemption from liability, if the ticket is printed in such a way, or delivered to him in such a state, as not to give reasonable notice on the face of it that it does embody some special conditions. (https://www.paksearch.com/Government/CORPORATE/Contract/B38.htm)

In determining these questions the class of persons to whom the special conditions are offered, and the degree of intelligence to be expected of them, may properly be taken into account.

The plaintiff in one case purchased of the defendant company a ticket by steamer, which was in the French language. Towards the top of the ticket were words to the effect that "this ticket in order to be available, must be signed by the passenger to whom it is delivered." At the foot of the ticket there was an intimation in red letters that the ticket was issued subject to the conditions printed on the back. One of those conditions was that the company incurred no liability for any damage which the luggage might sustain. The vessel was wrecked by the fault of the company's servants, and the plaintiff's baggage was lost. The plaintiff sued the defendant company for damages. The ticket was not signed by him, and he stated that he did not understand the French language, and that the conditions of the ticket had not been explained to him. It was held that the plaintiff had reasonable notice of the conditions, and that it was his own fault if he did not make himself acquainted with them. (https://www.paksearch.com/Government/CORPORATE/Contract/B39.htm)

Incorporation of prospectus in a policy of assurance.--.The question of the effect to be given to the prospectus of a company which was incorporated by reference in a policy of life assurance arose some time ago in a Madras case (https://www.paksearch.com/Government/CORPORATE/Contract/B40.htm) in connection with the onus of proof of age of the assured. In the course of the judgment, Bhashyam Ayyangar J., said: "As regards the effect to be given to the prospectus as a part of the contract of insurance, I think it will have the same effect as if it had been reproduced in the policy itself, and it is quite unnecessary to prove that the prospectus had been read by the assured or that it was specially brought to his notice by the company apart from the reference made to it in the policy itself. A policy of insurance being a contract entered into between the insurers and the assured, and the terms of such contract resting entirely upon the contract itself, and not in the main or even in part upon the common law or upon the statute, the assured, who makes the proposal, enters into the contract, and signs the policy, has in the very nature of things notice that the policy contains all the terms and conditions of the contract." The learned Judge proceeded to cite and rely on Watkins v. Rymull (https://www.paksearch.com/Government/CORPORATE/Contract/B41.htm). Ayyangar J. concluded that the signatory was bound. Although it would not affect the decision, as the signatory was in any case held liable, a situation such as this, where the defendant has signed a document, should have been sharply distinguished from the ticket cases; a signatory is bound, unless there has been some misrepresentation, or it is a case of non est factum; L' Estrange v. Graucob. (https://www.paksearch.com/Government/CORPORATE/Contract/B42.htm)
Contract---Acceptance---Communications referred to not equivalent to acceptance---No reliance in absence of written communication, held, can be placed on oral testimony---Plaintiff failing to establish contract for sale---Judgment and decree of trial Court holding that there existed a binding contract between parties set aside. (https://www.paksearch.com/Government/CORPORATE/Contract/B43.htm)

Formation of contract---Bidder giving lowest bid but same not accepted---Authority having reserved right under clause 9 of invitation of Tender to accept lowest or any other tender---Bidder, acquired held, no vested right to contract in circumstances---Provisional Constitution Order (P.O.I. of 1981), Art. 9. (https://www.paksearch.com/Government/CORPORATE/Contract/B44.htm)

Terms and conditions on the back of the contract---Referred to in the contract as binding---If binding on the parties. Terms and conditions were printed at the back of the contract and it was provided that they were binding on the parties.

Held: That the contention that the terms and conditions printed at the back of the contract were not binding is untenable because reference to them was unmistakably made on the face of the document. (https://www.paksearch.com/Government/CORPORATE/Contract/B45.htm)

Acceptance of tender not communicated to promisor---Acceptance subsequently revoked---Contract cannot be enforced---Negligence of promisee or his employees in not communicating acceptance immaterial. A Municipal Committee invited tenders for leasing out certain premises. The Chairman allegedly accepted the offer of the plaintiff being the highest offer and passed orders on the file for delivery of possession to him. Such acceptance, however, was not communicated by the Municipal Committee to the plaintiff and was subsequently revoked. Held: There is no legal basis for the proposition that communication of acceptance is not communicated due to the negligence of the promisee, or his employee or agents. (https://www.paksearch.com/Government/CORPORATE/Contract/B46.htm)

Proposal made on basis of certain representations---Facts changing before acceptance of proposal---Such facts suppressed--Party accepting proposal not bound by contract. If a person makes a representation by which he induces another to take a particular course and the circumstances are afterwards altered to the knowledge of the party making the representation, but not to the knowledge of the party to whom the representation is made, and are so altered that the alteration of the circumstances may affect the course of conduct which may be pursued by the party to whom the representation is made, it is the imperative duty of the party who had made the representation to communicate to the party to whom the representation has been made, the alternation of those circumstances and the Court will not hold the party to whom the representation has been made, bound, unless such communication has been made. (https://www.paksearch.com/Government/CORPORATE/Contract/B47.htm)

Insurance policy accepted by Company on representation that assured has not suffered any injury---Injury suffered by assured after proposal but before its acceptance not disclosed to insurance company---Insurance Company not bound by contract of insurance. An insurance company issued a letter of acceptance and a risk receipt accepting the proposed insurance policy covering the life of a person. The Insurance Company in the said letter specifically stated in accepting the proposal that it retained the right of declining the proposal and any policy which may be issued on the premium being paid would be invalid if the person insured in the meantime had suffered from any illness or injury unless the Company was informed of the same. The person insured had in the meantime, in fact, suffered an accident and injured one of the toes of his left foot which subsequently became gangrenous. He, however, failed to inform the Company about the injury suffered and died soon afterwards. In these circumstances, it was held that the contract of insurance concluded had become void and ineffective and no amount could be recovered from the insurance company. (https://www.paksearch.com/Government/CORPORATE/Contract/B48.htm)

4. Communication when complete. The communication of a proposal is complete when it comes to the knowledge of the person to whom it is made.

The Communication of an acceptance is complete, as against the proposer, when it is put in a course of transmission to him, so as to be out of the power of the acceptor; as against the acceptor, when it comes to the knowledge of the proposer.

The communication of a revocation is complete, as against the person who makes it, when it is put into a course of transmission to the person to whom it is made, so as to be out of the power of the person who makes it; as against the person to whom it is made, when it comes to his knowledge.

(a) A. proposes, by letter, to sell a house to B. at a certain price. The communication of the proposal is complete when B. receives the letter.

(b) B. accepts A.'s proposal by a letter sent by post. The communication of the acceptance is complete; as against A., when the letter is posted; as against B., when the letter is received by A.

(c) A revokes his proposal by telegram. The revocation is complete as against A., when the telegram is despatched.

It is complete as against B. when B. receives it.

B. revokes his acceptance by telegram. B.'s revocation is complete as against B. when the telegram is dispatched, and as against A. when it reaches him.

Agreement between parties at a distance. No difficulty arises on the first paragraph. (https:///) Whether a proposal has or has not come to the knowledge of the person to whom it was made is purely a question of fact. The rest of the section is intended, as shown by the illustrations to meet the questions raised by the formation of agreements between parties at a distance. It has done this, as regards acceptance by enacting (in combination with S. 5) that for a certain time, namely, while the acceptance is on its way, the receiver shall be bound and the sender not. The proposal becomes a promise before it is certain that there is any consideration for it. This can be regarded only as a deliberate and rather large departure, for reasons of convenience, from the common law rule which requires the promise and the consideration to be simultaneous. No such departure has been found necessary in England. The case of an acceptance being "put in a course of transmission to" the proposer, but failing to reach him, is not expressly dealt with. It seems to result from the language of the second paragraph that the proposer must be deemed to have received the acceptance at the moment when it was despatched so as to be "out of the power of the acceptor", and that accordingly it becomes a promise on which the acceptor can sue, unless some further reasons can be found why it should not. If the consideration on the acceptor's part was not promise but performance, for example, the sale of goods despatched at the proposer's request without previous negotiation, the failure of consideration may supply such a reason in the case proposed. The Act certainly does not say that the intending purchaser must be deemed to have received goods which have never arrived; it says at most that he must be deemed to have been aware of their despatch. But if the consideration on the acceptor's part was a promise, it would seem that the proposer cannot say he has not received that consideration; for he cannot say that the acceptance has not been communicated to him and there is no difference between having the communication of a promise and having the promise itself. Consequently, where the agreement is to consist in mutual promises, a binding contract appears to be formed by a letter of acceptance despatched in the usual way, even if it does not arrive at all, unless the proposal was expressly made conditional on the actual receipt of an acceptance within a prescribed time, or in due course, or unless the acceptor sends a revocation as provided for by the latter part of the section and explained by illustration (c). This last qualification is probably, though not certainly, a departure from English law. Apart from the question of a possible revocation, the total result, on the words of the Act, is in accordance with the existing English authorities. Those authorities, however, are of later date than or Act, and in 1872 The current of opinion was rather the other way. It seems uncertain whether the framers of the Act really omitted to consider the case of an acceptance not arriving at all, or meant it to be an implied exception, on the ground that the want of any final consent between the parties (see S. 10) would prevent the formation of a contract, or how otherwise.

Statutory consents.---The validity of consents required by special statutory provisions, and revocations thereof, is governed by the terms of the statute, and, in case of difference, not by this or the following section. (https://www.paksearch.com/Government/CORPORATE/Contract/B50.htm)

Acceptor sent through post its acceptance of bids of proposer but proposer did not receive acceptance and not paid balance amount so as to face cancellation of concluded sale---Whether acceptance of offer transmitted to proposer through post created a binding contract---Late-receipt or non-receipt of acceptance by proposer and its failure to pay balance payment---Effect---Contract relating to immovable property---Time not essence of contract. (https://www.paksearch.com/Government/CORPORATE/Contract/B51.htm)

Contract---Offer---Acceptance of---Communication of---Appellant signifying its acceptance to offer made by respondents---Such acceptance, though never revoked, not reaching respondents---Held: Mere transmission of acceptance to result in binding contract---Held further: Contract would be complete and binding on respondents immediately after posting of acceptance. (https://www.paksearch.com/Government/CORPORATE/Contract/B52.htm)

Contract of service with public servant---Direction of Government to appoint sufficient for completion of contract---Determination of pay and conditions of service irrelevant. Where the Governor decided to appoint a certain person to a particular post on the basis of contract, the contract of service is complete and it cannot be said that the determination of his salary and conditions of service is necessary before the contract can be said to be complete, because the latter can be ascertained later on. (https://www.paksearch.com/Government/CORPORATE/Contract/B53.htm)

Jurisdiction---Case of breach of contract---Where may be tried. The suit on a breach of contract can be filed at any place where the contract should have been performed in the whole or in part, and even in so far as the price of the goods in the present case was payable at Karachi, the Karachi Courts would have jurisdiction to entertain the suit. (https://www.paksearch.com/Government/CORPORATE/Contract/B54.htm)

Jurisdiction---Case of breach of contract---Where may be tried. The suit on a breach of contract can be filed at any place where the contract should have been performed in the Whole or in part, and even in so far as the price of the goods in the present case was payable at Karachi, the Karachi Courts would have jurisdiction to entertain the suit. (https://www.paksearch.com/Government/CORPORATE/Contract/B55.htm)

5. Revocation of proposals and acceptances. A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, but not afterwards.

An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.

A proposes, by a letter sent by post, to sell his house to B.
B accepts the proposal by a letter sent by post.
A may revoke his proposal at any time before or at the moment when B posts his letter of acceptance, but not afterwards.
B. may revoke his acceptance at any time before or at the moment when the letter communicating it reaches A but not afterwards.

Revocation of Offers.--- It is implied in this section that the proposer of a contact cannot bind himself (unless by a distinct contract made for a distinct consideration) to keep Iris offer open for any definite time, and that any words of promise to that effect can operate only for the benefit of the proposer and as a warning that an acceptance after the specified time will be too late (S. 6, sub-s. 2). Such is undoubtedly the rule of the Common Law. The reason is that an undertaking to keep the offer open for a certain time is a promise without consideration, and such a promise is unenforceable. A gives an undertaking to B to guarantee, for twelve months, the due payment of M.'s bills, which may be discounted by B at A's request. This is not a binding promise, but a standing proposal which becomes a promise or series of promises as and when B discounts bills on the faith of it. A may revoke it at any time, subject to his obligations as to any bills already discounted. "The promise" or rather offer" to repay for twelve months creates no additional liability on the guarantor, but, on the contrary, fixes a limit in time beyond which his liability cannot extend" Z offers to take A's house on certain terms, an answer to be given within six weeks. A within that time writes Z a letter purporting to accept, but in fact containing a material variation of the terms (see S. 7 sub-s. 1, below); Z then withdraws his offer; A writes again, still within the six weeks correcting the error in his first letter and accepting the terms originally proposed by Z. No contract is formed between Z and A, since A's first acceptance was insufficient, and the proposal was no longer open at the date of the second. (https://www.paksearch.com/Government/CORPORATE/Contract/B56.htm) Similarly a proposal to sell goods allowing eight days' time for acceptance may be revoked within the eight days unless the promise to keep the offer open was supported by consideration. (https://www.paksearch.com/Government/CORPORATE/Contract/B57.htm) A statutory power to make rules for the conduct of departmental business will, however, justify a local government in prescribing, among the conditions of tenders for public service, that a tender shall not be withdrawn before acceptance or refusal. (https://www.paksearch.com/Government/CORPORATE/Contract/B58.htm)

Sale by Auction, etc.---The liberty of revoking an offer before acceptance is well shown in the case of a sale by auction. Here the owner of each lot put up for sale makes the auctioneer his agent to invite offers for it, and "every bidding is nothing more than an offer on one side, which is not binding on either side till it is assented to." Hence a bidder may withdraw his bid at any moment before the fall of the hammer. (https://www.paksearch.com/Government/CORPORATE/Contract/B59.htm) It is common to insert in conditions of sale a proviso that biddings shall not be retracted, but it seems that such a condition is inoperative in law for a one-sided declaration cannot alter the bidder's rights under the general law, nor is there any consideration for his assenting to it, even if he could be supposed to assent by attending the sale with notice of the conditions. (https://www.paksearch.com/Government/CORPORATE/Contract/B60.htm)

In two Madras cases, it has been held that where a bid has, to the knowledge of the bidder, been conditionally accepted, the agreement is complete once the condition has been fulfilled, and no communication to the offerer of the absolute acceptance is necessary. In a bench decision (https://www.paksearch.com/Government/CORPORATE/Contract/B61.htm), D, a bidder for a piece of land, was notified of X's acceptance of his bid 'subject to the approval and orders of the special agent V'. V did approve, and a document embodying his approval was drawn up, but was not communicated to D, and the land was sold by X to P. P sought to eject D, relying on S. 4, but the Court held for D, on the ground that the contract was complete on the fulfillment of the condition subsequent. The decision was followed (https://www.paksearch.com/Government/CORPORATE/Contract/B62.htm) and property was knocked down to P, the highest bidder at an auction, 'subject to the approval of the C.D. bank'. The bank passed a resolution accepting the bid, but rescinded it before it was communicated to P. The Court nevertheless gave specific performance in favour of P, on the ground that communication of acceptance twice was not needed, once when the conditional acceptance was given and again when the condition was fulfilled.

It is submitted that these two cases were wrongly decided. In the 1916 bench decision, the Court misunderstood the nature of a condition subsequent. A condition subsequent predicates a pre-existing obligation, which is to terminate upon the occurrence of some event. It is a resolutive condition, as distinct from a suspensive condition or condition precedent, which prevents the existence of any obligation until the condition is satisfied. Yet the court clearly decided that there was no binding agreement at any rate until V, the special agent, approved. In other words, their lordships held that the condition was a condition precedent, for had the condition been a condition subsequent, there would have been a binding contract the moment D's bid was accepted, liable to be defeated by V's failure to approve. Appropriate wording to impose a condition subsequent would have been to the effect that the bid was accepted, but if V should not approve the contract was to be at an end.

It is submitted that in both cases there was a condition precedent, and that the bidder could have retracted his offer before the final acceptance by V and the C.D. bank respectively. (https://www.paksearch.com/Government/CORPORATE/Contract/B63.htm) An acceptance, in his opinion, is provisional where the offeree has no authority to accept the bid; he is a mere conduit-pipe. In the meantime, the offeror can withdraw his bid. But where the offeree has full power to accept the offer, yet gives only a qualified acceptance, although the offeree is not finally bound, the offeror cannot withdraw. This reasoning is, with respect, erroneous. An acceptance is either absolute or conditional. There is no halfway house between the two. If an acceptance is conditional, the offeror can withdraw at any moment until absolute acceptance has taken place.

Once it is established that there is no agreement binding on either party, at any rate until V or the C.D. bank respectively gives its approval, the only question remaining for determination is whether communication of this approval to the offeror is necessary before the agreement becomes binding. The general rule under S. 4 is that communication is required. S. 8 provides an exception, but this applies where the offeror expressly or implicity dispenses with the requirement of express communication. (https://www.paksearch.com/Government/CORPORATE/Contract/B64.htm) It seems that the offeror gave no such express or implied dispensation in either of the two Madras cases, and that there was no contract concluded until the approval of V and the C.D. bank respectively had been communicated.

Standing offers.--- A writing whereby A agrees to supply coal to B at certain prices and up to a stated quantity, or in any quantity which may be required, for a period of twelve months, is not a contract unless B binds himself to take some certain quantity, but a mere continuing offer which may be accepted by B from time to time by ordering goods upon the terms of the offer. In such a case, each order given by B is tin acceptance of the offer; and A can withdraw the offer, or, to use the phraseology of the Act, revoke the proposal, at any time before its acceptance by an order from B. (https://www.paksearch.com/Government/CORPORATE/Contract/B65.htm) Such a transaction may be reduced to a statement by the intending vendor in this form: "If you will send me orders for coal, I shall supply it to you for a period of twelve months at a particular rate." This is merely a proposal from A to B If, in reply to such a proposal, B says to A, "I agree," it does not constitute an acceptance of the proposal. An acceptance can take place only by B sending an order to A. If, however, there is an undertaking on the part of B not to send orders for coal (or whatever the goods in question may be) to any other person than A during a specified time, there is a good consideration for a promise by A to supply such coal as B may order on the specified terms and up to the specified extent. The same principle was affirmed by the Privy Council on an appeal from the Province of Quebec, where French-Canadian law, now codified, is in force. A printer covenanted to execute for the Government of the Province, during a term of eight years, the printing and binding of certain public documents on certain terms expressed in a schedule. In the course of the same year the Lieutenant-Governor cancelled the agreement. The printer sued the Crown by petition of right, and it was ultimately held, reversing the judgment below, that he had no ground of action.

"The contract" does not purport to contain any covenant or obligation of any sort on the part of the Crown. The respondent undertakes to print certain public documents at certain specified rates. For all work given to him on the footing of the contract the Government was undoubtedly bound to pay according to the agreed tariff. But the contract imposes no obligation on the Crown to pay the respondent for work not given to him for execution. There is nothing in the contract binding the Government to give to the respondent all or any of the printing work referred to in the contract, nor is there anything in it to prevent the Government from giving the whole of the work, or such part as they think fit to any other printer." (https://www.paksearch.com/Government/CORPORATE/Contract/B66.htm)

Advertisements of rewards and other so-called "general offers" have also raised questions whether particular acts were proposals of a contract capable of being promises by acceptance, or merely the invitation of proposals. This will be more conveniently dealt with under S. 8.

Oaths Act.---It has been held that if A offers to be bound by a special oath taken by B, and B accepts the offer, A cannot resile from the agreement (https://www.paksearch.com/Government/CORPORATE/Contract/B67.htm) Having regard, however, to the provisions of the Oaths Act, B may be allowed by the Court to resile from the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/B68.htm)

Revocation of proposal---When permissible---Governed by conditions of contract. Under section 5 of Contract Act a proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer, and under section 7 the acceptance of a proposal must be absolute and unqualified. The manner of revoking a proposal and of communicating acceptance might be controlled by the terms of agreement, yet it was necessary that the offer should have been accepted at least ultimately in an absolute and unqualified manner. (https://www.paksearch.com/Government/CORPORATE/Contract/B69.htm)

6. Revocation how made. A proposal is revoked:---

(1) by the communication of notice of revocation by the proposer to the other party;

(2) by the lapse of the time prescribed in such proposal for its acceptance, or, if no time is so prescribed, by the lapse of a reasonable time, without communication of the acceptance;

(3) by the failure of the acceptor to fulfill a condition precedent to acceptance; or

(4) by the death, or insanity of the proposer, if the fact of his death or insanity comes to the knowledge of the acceptor before acceptance.

Notice of Revocation.--- Here sub-s. (1) appears to make it a condition of revocation being effectual that it shall be communicated by the proposer or (which is the same thing) by his authority. This was probably intended to correspond with the law of England, but a few years after the Act was passed the Lords Justices James and Mellish used language apparently involving a different rule, though that case actually decided only that if an owner of immovable property makes a proposal to sell it to one man, and before that proposal is answered agrees to sell it to another, and the first, with the knowledge of this fact, then formally tenders an acceptance, the purchaser who first actually accepts has the better right to specific performance. (https://www.paksearch.com/Government/CORPORATE/Contract/B70.htm) It was not decided (though the Judges seem to have thought) that knowledge, not communicated by the proposer, that the property was sold to some one else was such a revocation of the first proposal as in itself made acceptance by the person to whom it was made impossible. Acceptance of a proposal which the proposer has made it impossible to fulfill is not necessarily unmeaning or inoperative ; the fact that an obligation cannot be specifically performed is consistent with the promisor being bound to pay damages for his default. Many obligations are from the first incapable of specific performance so far as any power of the Court is concerned. It would be absurd to hold that a promisor is to go scot-free because by his own action he has reduced the possibilities of his obligation from a higher to a lower level. The reasons given for the decision have been freely criticized in England; but, as the decision itself is not of positive authority in India in a matter covered by the terms of the Contract Act, it does not seem useful to pursue the discussion here.

Revocation not presumed.--- As Lord Justice James said "prima facie every contract is permanent and irrevocable, and it lies upon a person who says that it is revocable or determinable to show either some expression in the contract itself, or something in the nature of the contract, from which it is reasonably to be implied that it was not intended to be permanent and perpetual, but was to be in some way or other subject to determination". (https://www.paksearch.com/Government/CORPORATE/Contract/B71.htm) This dictum, and the case cited in our note, realy belong to the subject of interpretation, in cases where it is alleged that an option to determine a completed contract is conferred by the terms of the contract itself. But the principle that an intent to revoke what has once been deliberately uttered will not be lightly presumed or too readily inferred appears to be equally applicable to proposals. Moreover, the Act does not explicitly deal with interpretation anywhere. The Lord Justice went on to point out that many contracts, those of employment, agency, and the like, are by their nature not expected to be of indefinite duration. The agreement before him was an agreement for running powers between two railway companies.

Condition precedent to acceptance.--- As to sub-s. 3, it is not very easy to see what a condition precedent to acceptance means. The words (like several other of the less felicitious phrases in the Act) appear to have been borrowed without much reflection from the draft Civil Code of the State of New York, completed in 1865 and never adopted in its own State. There is nothing in the original context to throw light on them. A man proposing a contract may request either a single act, or several acts, or a promise or set of promises, or both acts and promises, as the consideration for a promise which he offers. The other party may do something obviously inconsistent with performing some or one of the things requested. This amounts to a tacit refusal, and accordingly the proposal is at an end (see notes on S. 5, "Revocation of offers," above)., and the parties can form a contract only by starting afresh. If the fact amounts to a refusal, there is no manifest reason for calling it failure to fulfill a condition precedent. The term is not used in this connection in English books. Everything required on the acceptor’s part to complete an acceptance would rather seem to be part of the acceptance itself. This sub-section does not appear to have been judicially interpreted or indeed to have any very material effect.

Death or insanity of proposer.--- The provision made by sub-s. 4 is quite clear. It is a variation from English law, where on the one hand it is understood that "the death of either party before acceptance causes an offer to lapse," without any qualification as to notice, and on the other hand it does not seem that supervening insanity of the proposer operates as a revocation at all, since the contract of a lunatic is only voidable and not void. If an offer is addressed to a man who dies without having accepted or refused it, his executors have no power to accept it either in England or in India. For the proposer cannot be presumed to have intended to contract with a deceased person’s estate. This is very different from the case of one who accepts a proposal without knowing that the proposer is dead.

Refusal.--- The rejection of a proposal by the person to whom it is made is wholly distinct from revocation, and is not within this section. A counter-offer proposing different terms has the same effect as a merely negative refusal; it is no less a rejection of the original offer, and a party who, having made it, changes his mind, cannot treat the first offer as still open. (https://www.paksearch.com/Government/CORPORATE/Contract/B72.htm)

7. Acceptance must be absolute. In order to convert a proposal into a promise, the acceptance must:---

(1) be absolute and unqualified;

(2) be expressed in some usual and reasonable manner, unless the proposal prescribes the manner in which it is to be accepted. If the proposal prescribes a manner in which it is to be accepted, and the acceptance is not made in such manner, the proposer may, within a reasonable time after the acceptance is communicated to him, insist that his proposal shall be accepted in the prescribed manner, and not otherwise; but if he fails to do so, he accepts the acceptance.

Certainty of acceptance.--- The rule of the first sub-section is in itself obviously necessary, for words of acceptance which do not correspond to the proposal actually made arc not realy an acceptance of anything, and, therefore, can amount to nothing more than a new proposal, or, as it is frequently called, a counter-offer. The difficulties which occur under this head are difficulties not of principle but of construction. the question being in every case whether a particular communication is to be understood as a real and absolute acceptance, or as introducing a condition or qualification which makes it only a stage in a course of negotiation capable of leading, but not necessarily leading, to a concluded contract. Sometimes additional words that seem at first sight to make the acceptance conditional arc m, more than the expression of what the law implies.

A Bench decision from Calcutta (https://www.paksearch.com/Government/CORPORATE/Contract/B73.htm)is a clear, though tacit, rejection of the view of Lord Cairns. There P, who claimed that D had agreed to lease certain property to him, had his solicitor write a letter to D, purporting to confirm the agreement, and reciting the terms, one of which was that the lessor would make out a good title to the property free from all incumbrances. The Court held that this term, coupled with a final paragraph asking for the documents of title to be sent for investigation, indicated that no binding contract had yet been arrived at between the parties. Again, the offer of a new contract may be annexed to an absolute acceptance so that there is a concluded contract whether the new offer is accepted or not. (https://www.paksearch.com/Government/CORPORATE/Contract/B74.htm) On the other hand reference to special conditions not known to the other party, as distinguished from terms already made part of the proposal, will prevent an acceptance from being final. So will a reference to future unspecified terms "to be arranged," or the like, between the parties or their agents. But an acceptance on condition, coupled with an admission that the condition has been satisfied, may be in effect unconditional. (https://www.paksearch.com/Government/CORPORATE/Contract/B75.htm) An acceptance which is in form conditional may also be considered in fact absolute, on the ground that the parties did not really envisage the incorporation in the contract of any terms other than those already agreed, an offer was accepted "subject to the usual conditions of acceptance." It was held that there was a binding contract, as these words were on the facts quite meaningless: the offeree had not in mind that any further terms were to be agreed, but was using a high-sounding phrase to which he attached no particular meaning. In another case, also before the Court of Appeal, (https://www.paksearch.com/Government/CORPORATE/Contract/B76.htm) D entered into a written agreement to buy P's mushroom farm. The agreement concluded with these words: "This is a provisional agreement until a fully legalised agreement drawn up by a solicitor and embodying all the conditions herewith stated is signed." No "fully legalised agreement" was ever prepared, but the Court held the parties bound, one of the points being that no other condition was to be incorporated in the agreement to be drawn up by the solicitor.

Although there can be no contract without a complete acceptance of the proposal, it is not universally true that complete acceptance of the proposal makes a binding contract; for one may agree to all the terms of a proposal, and yet decline to be bound until a formal agreement is signed, or some other act is done. This is really a case of acceptance with an added condition, but of such special importance as to call for separate mention. There may be an express reservation in such words as these: "This agreement is made subject to the preparation and execution of a formal contract". Or a proposal for insurance may be accepted in ail its terms, but with the statement that there shall be no assurance till the first premium is paid. Here again there is no contract, but only a counter-offer, and the intending insurer may refuse a tender of the premium if there has meanwhile been any material change in the facts constituting the risk to be insured against. Where there is no precise clause of reservation, but the acceptance is not obviously unqualified, it becomes a question of construction whether the parties intended that the terms agreed on should merely be put into form, (https://www.paksearch.com/Government/CORPORATE/Contract/B77.htm) or whether they should be subject to a new agreement the terms of which are not expressed in detail, (https://www.paksearch.com/Government/CORPORATE/Contract/B78.htm) and this must be determined by examination of the whole of a continuous correspondence or negotiation. It will not do to pick out this or that portion which, if it stood alone, might be sufficient evidence of a contract. But where it appears that a complete contract was formed by unqualified acceptance of an offer at a certain date, subsequent negotiations will have no effect unless they amount to a new agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/B79.htm)

In India it has been laid down, in accordance with English law as well as with the terms of the Act, that an acceptance with a variation is no acceptance; it is simply a counter-proposal, which must be accepted by the original promisor before a contract is made. (https://www.paksearch.com/Government/CORPORATE/Contract/B80.htm) Thus where an offer was made for the purchase of certain goods which were to be ordered out from Europe, an acceptance "free Bombay Harbour and interest," being a term not contained in the offer, was held to be no acceptance within the meaning of this section. In such a case the acceptance with a qualification is in its nature a counter-proposal which, if accepted by the proposer, would constitute an agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/B81.htm)

Apparent without real acceptance.-- In exceptional circumstances there may be an unconditional acceptance in terms of a proposal which in fact the parties do not understand in the same sense, and which neither party is estopped from understanding in his own sense. Here the acceptance is merely apparent, and no contract is formed. Such cases are better postponed till we come to S. 13.

Manner of acceptance [sub-s. 2].--- A proposal must be accepted according to its terms. Therefore, if the proposer chooses to require that goods shall be delivered at a particular place, he is not bound to accept delivery tendered at any other place. (https://www.paksearch.com/Government/CORPORATE/Contract/B82.htm) It is not for the acceptor to say that some other mode of acceptance which is not according to the terms of the proposal will do as well. In a Calcutta case (https://www.paksearch.com/Government/CORPORATE/Contract/B83.htm) an offer was made in the following terms :---"I intend to sell my house for Rs.7,000. If you are willing to have it, write to F at his address." Instead of writing to F the purchaser sent an agent in :person to F and agreed to purchase the property for Rs. 7,000. It was contended that this was not a valid acceptance, as the only manner in which the acceptance of the offer could be made was by writing to F at his address. It was held that the letter had to be read in a reasonable manner and that it did not preclude the purchaser from putting himself into direct communication with F. This decision may perhaps be doubted, and a safer ground would have been that on the oral acceptance being communicated to the vendor he did not insist upon the proposal being accepted in writing.

The present sub-section, however, throws on the proposer the burden of notifying to the acceptor that an acceptance not in the prescribed manner and form is insufficient, and he remains bound if he fails to insist on an acceptance such as he required. No previous or subsequent authority for this has been found in the Common Law, nor does analogy seem to favour it.

At all events, one party to a negotiation cannot impose on the other the burden of expressly refusing, either an original offer or a counter-offer by saying that he will assume acceptance unless he hears to the contrary. (https://www.paksearch.com/Government/CORPORATE/Contract/B84.htm) Assent to his terms is a positive act within the other party's discretion, and he has no right to presume it. Neglect to answer a business offer is certainly not, as a rule, prudent or laudable; still there is no legal duty to answer at all.

8. Acceptance by performing conditions, or receiving consideration. Performance of the conditions of a proposal, or the acceptance of any consideration for a reciprocal promise which may be offered with a proposal, is an acceptance of the proposal.

General Offers.---The terms of this section are very wide. Nothing like them occurs in the original draft of the Indian Law Commissioners, nor, so far as known to us, in any authoritative statement of English law. They appear to have been taken from the draft Civil Code of New York, with slight verbal alteration. In the absence of illustrations, their intended scope is not very clear. It seems, however, fairly certain that the division of the subject-matter of the section into two branches, "performance of the conditions of proposal" and "acceptance of any consideration for a reciprocal promise which may be offered with a proposal," corresponds to the general division of proposals into those which offer a promise in exchange for an act or acts and those which offer a promise in exchange for a promise. We have already noted on S. 2 (a) and (b), above, that the word proposal, as defined by the Act, seems to be limited to the offer of a promise. Accordingly "performance of the conditions of a proposal' seems to be nothing else than doing the act requested by the proposer as the consideration for the promise offered by him, as when a tradesman sends goods on receiving an order from a customer. The only previous definition of acceptance in the Act is that a proposal is said to be accepted when the person to whom it is made "signifies his assent thereto" [S. 2(b)]. This has to be read with the provisions as to communication in ss. 4 and 7. So far there might have been doubt whether acceptance can ever be binding without communication ; and, indeed, the present section does not expressly dispense with communication in any case. Nevertheless it appears, in its first branch, to recognise the fact that in the cases in which the offeror invites acceptance by the doing of an act "it is sometimes impossible for the offeree to express his acceptance otherwise than by performance of his part of the contract." (https://www.paksearch.com/Government/CORPORATE/Contract/B85.htm) The most obvious example is where a reward is publicly offered to any person, or to the first person, who will recover a lost object, .procure certain evidence, or the like. Here the party claiming the reward has not to prove anything more than that he performed the conditions on which the reward was offered, which conditions may or may not include communication by him to the proposer. In the simple case of a reward proposed for something in which the proposer has an obvious interest, there is not likely to be any other question than what the terms were, and whether they have been satisfied by the claimant. There is some authority for construing the terms liberally in favour of a finder. (https://www.paksearch.com/Government/CORPORATE/Contract/B86.htm) But analogous or seemingly analogous cases may be less simple. There may be questions, whether the offer was sufficiently certain or whether it was intended, or could reasonably be taken, as the offer of a contract at all. So where brokers in Bombay wrote to merchants in Ghaziabad stating their terms of business and the merchants afterwards placed orders with the brokers which were executed by them, it was held that the first letter was only an invitation to do business; no contract was made until the orders given by the brokers were accepted by the merchants and hence the cause of action arose wholly in Bombay. (https://www.paksearch.com/Government/CORPORATE/Contract/B87.htm) A bank's letter with quotations as to particulars of interest on deposits in answer to an enquiry is not an offer but only a quotation of business terms. (https://www.paksearch.com/Government/CORPORATE/Contract/B88.htm) Where the owner of a property says that he will not accept less than Rs.6,000/-, he does not make an offer, but merely invites offers. (https://www.paksearch.com/Government/CORPORATE/Contract/B89.htm)

As to the objection that to complete the plaintiff's acceptance of the offer there must either be communication to the defendant or some act of a public nature, Bowen L.J. said (https://www.paksearch.com/Government/CORPORATE/Contract/B90.htm) "One cannot doubt that, as an ordinary rule of law, an acceptance of an offer made ought to be notified to the person who makes the offer, in order that the two minds may come together .. But there is this clear gloss to be made upon that doctrine, that, as notification of acceptance is required for the benefit of the person who makes the offer, the person who makes the offer may dispense with notice to himself if he thinks it desirable to do so, and I suppose that there can be no doubt that where a person, in an offer made by him to another person, expressly or impliedly intimates a particular mode of acceptance as sufficient to make the bargain binding, it is only necessary for the other person to whom such offer is made to follow the indicated method of acceptance; and if the person making the offer expressly or impliedly intimates in his offer that it will be sufficient to act on the proposal without communicating acceptance of it to himself, performance of the condition is a sufficient acceptance without notification." Cp. S. 7(2), above. This principle was followed in case (https://www.paksearch.com/Government/CORPORATE/Contract/B91.htm) where A. signed a proposal form of insurance on his life and handed it to N, an organiser of the defendant insurance company, with a cheque for the premium. N had no authority to receive the cheque as premium, but after A had been twice medically examined the company cashed the cheque. Two weeks later the company wrote to N asking him to make further enquiries regarding A's proposal, but the next day A died of pneumonia. The company denied liability, but the Court held that the contract was complete from the moment the cheque was cashed, as A had dispensed with express communication of acceptance.

Perhaps it would now be a safe and more elegant way of stating the law to say that a proposal is in every case accepted by performance of its conditions (or perhaps, more accurately, by compliance with its terms); that communication by the acceptor to the proposer or his authorised agent is necessary when the terms consist of or include a counter-promise (for there is no promise at all without communication); but that when only acts are required the communication of their performance may or may not be added as a term of the offer at the will of the proposer, which may be either express or inferred from the nature and circumstances of the proposal. (https://www.paksearch.com/Government/CORPORATE/Contract/B92.htm) From this point of view, the present section of the Act would be logically prior to S. 7.

There has been another somewhat peculiar case before the Privy Council. (https://www.paksearch.com/Government/CORPORATE/Contract/B93.htm) The plaintiff was a grandniece of Papamma, a wealthy Hindu widow, and was brought up by her from early age. At the age of fourteen the plaintiff was married to an ex-zamindar who owned property of considerable value. Papamma was anxious that the plaintiff, although married, should continue to live with her, and she promised that if the plaintiff and her husband would reside with her, she would make provision for her on a fairly ample scale by the purchase of immovable property for her. The plaintiff and her husband accordingly lived with Papamma. In 1893 Papamma bought a village in her own name, but, as she stated, for the appellant. Dissatisfaction arose because it was not transferred to the plaintiff, and the husband consequently ceased to reside with Papamma. Papamma sent messages to the husband asking him to return, but he did not return. In October, 1893, Papamma wrote a letter in her own hand to the plaintiff herself stating that the village had been purchased for the appellant and would be transferred to her upon the writer's death. The plaintiff and her husband thereafter resided with Papamma until Papamma's death ,in 1899. After Papamma’s death the plaintiff instituted a suit for a declaration that she was entitled to the village and for possession thereof. Their lordships held that the letter of October, 1893, constituted a promise which was accepted by the plaintiff, and that there was a completed contract which entitled the plaintiff to possession of the village: "The Board is of the opinion accordingly that there has been a completed contract. Papamma accomplished her desire, and she obtained the consideration which she had so much at heart. Acceptance of her terms and compliance with her stipulation were made.

Acceptance by receiving consideration.--- The second branch of the section as to "acceptance of any consideration," etc., is rather obscure. It is hard to say with any certainty what particular class or classes of transactions it covers, and the words seem more appropriate to gifts or transfers of property than to contracts. It is generally sound principle, no doubt, that what is offered on conditions must be taken as it is offered. The use of the word "reciprocal’ is curious, for it hardly fits the most obvious class of cases, as where goods are sent on approval, and the receiver keeps them with the intention of buying them. Here the seller need not and commonly does not offer any promise, and there is therefore no question of a reciprocal promise as defined in the Act IS. 2(t)]. No doubt the acceptance of an offered consideration, as such, amounts to giving the promise (whether reciprocal or not) for which it was offered, or else raises an equivalent obligation. But a thing which is offered in one right and for one purpose may be taken under a different claim of right and with a different intent; and in that case (which is exceptional but of some importance) the legal result will not be a contract between the parties, whatever else it is capable of being, unless indeed the party receiving the thing so conducts himself as to lead the proposer reasonably to conclude that there is an acceptance according to the offer; and then the proposer can hold him liable on the universal principle that a man's reasonably apparent intent is taken in law to be his real intent. We cannot suppose that the present section is intended to preclude all inquiries of this kind by making every receipt in fact of a thing offered by way of consideration a conclusive acceptance of the proposal. It has been applied however to the case of a bank's customer receiving notice, which he did not answer, of an increase in the rate of interest on overdrafts, and afterwards obtaining a further advance; held that he accepted a consideration offered by the bank within the terms of this section. (https://www.paksearch.com/Government/CORPORATE/Contract/B94.htm)

Acceptance sub silentio---When offeree's silence constitutes acceptance---Where contract is in part, there must be consensus ad idem and in its absence, even after parties have signed the contract, a counter offer can be made suggesting an amendment or novatio and the offeree's silence coupled with subsequent conduct in this regard would amount to acceptance of counter offer. (https://www.paksearch.com/Government/CORPORATE/Contract/B95.htm)

Tender for sale of property---Only an offer---No contract unless tender accepted---Even highest tender may be refused. An advertisement inviting tenders for the sale of property is not an offer but an invitation of an offer. The tender in law is only an offer for the purchase of the property and if the tender of a person, even if it is the highest, is not accepted, he cannot make a grievance of the fact. The offer for the sale of the property does not give a right to the offerer for its purchase. A tender only when accepted constitutes a binding contract; and unless the contract comes into existence mutual rights and obligations of the parties do not arise. (https://www.paksearch.com/Government/CORPORATE/Contract/B96.htm)

9. Promises, express and implied. In so far as the proposal or acceptance of any promise is made in words, the promise is said to be express. In so far as such proposal or acceptance is made otherwise than in words, the promise is said to be implied.

Express and tacit promises.--- This section assumes rather than lays down that which we have already found it needful to mention in the course of the commentary, namely, that both proposals and acceptances may take place without express words. An implied promise, in the sense of the Act, is a real promise, though not conveyed in words. It must be distinguished from the promises frequently said in English books to be implied by law, which were fictions required by the old system of pleading to bring cases of "relations resembling those created by contract" (Ss. 68-72, below) within the recognised forms of action, and sometimes to give the plaintiff the choice of a better form of action. Thus, if the plaintiff desired to sue for a liquidated sum in the general form of assumpsit instead of in the less convenient form of debt, the law conclusively "implied" a promise to pay the debt, though there might not have been any promise in fact. The actual promise "made otherwise than in words" is a matter of fact which in common law practice would be established by the verdict of a jury; whereas in the case of the fictitious promise a jury might have to find the facts on which the law proceeded, but would not have been allowed to find that there was no real promise.

A tacit promise may be implied from a continuing course of conduct as well as from particular acts. Thus an agreement between partners to vary the terms of the partnership contract may "either be express or be implied from a uniform course of dealing" (s. 11 (1)of the Partnership Act, 1932, which reproduces well-settled English law). Where parties have acted on the terms of an informal document which has passed between them, but has never been executed as a written agreement or expressly assented to by both, it is a question of fact whether their conduct establishes an implied agreement to be bound by those terms. (https://www.paksearch.com/Government/CORPORATE/Contract/B97.htm) Questions may arise whether all the terms of another document are incorporated in a contract, when the contract refers to that document. The terms of a document can be incorporated by reference, when they are not inconsistent with the express terms of the incorporating document, and are not repugnant to the transaction which that document represents. (https://www.paksearch.com/Government/CORPORATE/Contract/B98.htm)

The language of the section appears to assume that the terms of a contract may be(as undoubtedly they may, by familiar law and practice) partly express and partly implied. A term which, in the opinion of the Court, results from the true construction of the language used by the parties may be said to be implicit in that language, but in the sense of the present section it is not implied; for it is contained in the words of the agreement, though not apparent on the face of them. But there is a class of cases, of considerable importance in England, where the parties are presumed to have contracted with tacit reference to some usage well known in the district or in the trade, and whatever is prescribed by that usage becomes an additional term of the contract, if not contrary to the general law or excluded by express agreement. Such terms are certainly implied, as resulting not from the words used, but from a general interpretation of the transaction with reference to the usual understanding of persons entering on like transactions in like circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/B99.htm) In India most of the cases of this kind which have been reported in the High Courts appear to be on implied contracts to pay interest. Such a contract may exist by reason of mercantile usage. The ground on which usages of this kind are enforced is not that they have any intrinsic authority, but that the parties are deemed to have contracted with reference to them. They need not, accordingly, be ancient or universal. It is enough that they are in fact generally observed by persons in the circumstances and condition of the parties.

Sale of immovable property---No price specified---Not enforceable contract. As a general rule, in the case of immovable properties price is of the essence of a contract of sale and unless the price is fixed there is no enforceable contract, because if no price is named the law does not imply, as in case of a sale of goods, a contract at a reasonable price. (https://www.paksearch.com/Government/CORPORATE/Contract/C1.htm)

12-19-2010, 01:28 AM
10. What agreements are contracts. All agreements are contracts if they are made by the free consent of parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void.

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

The first paragraph of this section is developed and applied by the more specific provisions of several following sections, which will be considered as they occur.

As to contracts required to be in writing.---See S. 25, sub-ss. 1 and 3, and S. 28, Exception 2, below. See also Indian Companies Act, 1956, S. 15, as to memorandum of association, S. 30 as to articles of association, and S. 46 as to contracts by companies. In this connection may also be noted the provisions of the Transfer of Property Act, 1882, which require a writing in the case of a sale (S. 54), of a mortgage (S. 59), lease (S. 107) and gift (S. 123), and the provisions of the Indian Trusts Act, 1882 which require a trust to be created in writing (S. 5); but these are not cases of contract in the proper sense of the word. Acknowledgments to save the law of limitation are required to be in writing by S. 19 of the Limitation Act, 1908. Arbitration agreements under the Arbitration Act, 1940, are similarly required to be in writing.

Oral and documentary evidence.---The. Act does not deal with the kind of proof generally required to establish the facts constituting a contract. In India the law on that subject is codified in the Indian Evidence Act, 1872. See especially ch. VI of that Act, Ss. 91 seq. as to the exclusion of oral by documentary evidence.

Ship..-Charter---Charter-party---Hire---Payment of---Condition---Punctual and regular payment of hire in advance---Failure to pay hire---Effect of---Owner becomes entitled to withdraw vessel---Charterer paying hire on due date by irrevocabled transfer to owners bank---Payment received by owner on due date but not attracting interest for four days---Owner can withdraw amount subject to payment of four days interest---Held: Payment not unconditional and punctual, owner entitled to withdraw vessel. (https://www.paksearch.com/Government/CORPORATE/Contract/C2.htm)

Contract for sale of land---Performance---It is well-settled that though period is fixed by contract itself presumption is that parties intended that agreement should be performed within a reasonable time---Fixation of time limit in agreement---Does not by itself rebut presumption and lead to an inference that time was intended to be essence of contract---Held, in circumstances of case, time fixed in contract was not intended to be essence of contract and defendant had committed no breach of agreement by not completing sale within stiputated time.

Terms contained in letter leading to execution of contract---Cannot be relied upon for interpreting contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C4.htm)

S. 10 read with Land Revenue Act, 1967 (W.P. Act XVII of 1967)---S. 42---Contract---Legality of---Challenge to---Sale deed allegedly executed in favour of son not given effect in revenue record in lifetime of seller and till further period of about four years after his death---Held: Consent of seller having not been freely given, deed (in dispute) not to be genuine one. (https://www.paksearch.com/Government/CORPORATE/Contract/C5.htm)

Contract with Govt.---Validity challenged with contentions that it was without sanction/authorisation/approval and that it was arrived at in violation of Rules of Business---Contentions repelled to be untenable and validity of contract upheld. (https://www.paksearch.com/Government/CORPORATE/Contract/C6.htm)

Contract already performed---Reversal not to be lightly ordered. Where a contract has actually been performed, it is only in most exceptional circumstances that the law permits a reopening and reversal of what has already been done on the basis of mutual agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/C7.htm)

Property conveyed under registered deed---Non-payment of consideration alleged---Sale is not avoided for non-payment---Price becomes charge on property. Where the seller challenges sale by registered deed on the ground that no consideration was paid for it.

Held: When the matter has passed from the stage of contract to that of an executed conveyance and possession of the property has been given thereunder even non-payment of consideration will not render the transaction void. The price if not paid, is a charge on the property sold and it can be recovered under the law. Title to the property nevertheless passed on the registration of the sale deed. (https://www.paksearch.com/Government/CORPORATE/Contract/C8.htm)

No written agreement between contractor and Government---Claim of contractor not finally accepted by Government---Matter still under consideration---No claim may be sustained on entries in minute books of negotiation between contractor and Government. (https://www.paksearch.com/Government/CORPORATE/Contract/C9.htm)

Charter party agreement---How can be construed. Like ordinary contracts the terms of a charter party agreement can also be spelt from the correspondence exchanged between the parties. (https://www.paksearch.com/Government/CORPORATE/Contract/C10.htm)

Contract with Government---Must be entered in proper form---Unenforceable if the officer executing it is not authorised to do so. Where the requisitioning authority gave alternate accommodation to the person occupying the requisitioned premises and it was contended that there was a contract between K and the Government to provide him with the accommodation so that the Government could not ask him to vacate it.'

Held: S. 176 of Government of India Act provides a particular method by which a contract should be made with the Govt. In this case no formal document was executed. The plaintiff has merely relied on the assurance given by the Accommodation Authority. The Government, however, is not bound by the said assurance as it was not expressed to be made by the Governor. It is well settled that, when a statute provides a particular method by which a contract should be made there must be compliance with the provisions of the statute. (https://www.paksearch.com/Government/CORPORATE/Contract/C11.htm)

Sovereign States,--If may enter into contract with each other---One State may act as agent of another. It would not be correct to say that sovereign and independent States cannot enter into any contractual relationship with each other or with an individual or individuals. There is no inherent incapacity in sovereign or independent States to enter into a contract either inter se or with individual or individuals. Although it is correct to say that treaties entered into by two States in the exercise of their sovereign powers, such as do not create any contractual relationship, would not constitute one the agent of the other, it would not be correct to say that a sovereign or independent State is incapable of acting as agent of another State or that of an individual or a body corporate. (https://www.paksearch.com/Government/CORPORATE/Contract/C12.htm)

Breach of contract of service---Contract for definite period---Damages---Salary for stipulated period must be paid. Held: Plaintiff's contract of service was for a definite period and has been terminated before its completion. In these circumstances the plaintiff is entitled to a salary for the remaining part of the period at the stipulated rate. (https://www.paksearch.com/Government/CORPORATE/Contract/C13.htm)

Contract of service---Terms and conditions set forth by Government in letter of appointment---Cannot be superseded by notification in Gazette. Where a retired Judge of High Court was appointed as Chairman of Industrial Court, and the letter of appointment among other things also stated that he was being appointed for an initial period of 3 years. But Gazette notification stated that his appointment was till further orders. Held: The plaintiff was in fact appointed for a minimum period of 3 years from the date he assumed office as Chairman of the Central Industrial Court and his services could not be terminated earlier than that. (https://www.paksearch.com/Government/CORPORATE/Contract/C14.htm)

Government contracts by---Must be within framework of Executive authority of Government. Even while entering into contracts the Government has to act necessarily within the framework of its executive authority. If the executive authority of the Government in relation to a particular subject is found to be wanting this void cannot be made good by the concerned Government purporting to act through a contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C15.htm)

Contract with Government---No form prescribed by statute---Government bound by contract. S. 175 (3), Government of India Act, 1935, provides a particular method by which a contract should be made with the Government. In this case no formal document was executed. The plaintiff has merely relied on the assurance given by the Accommodation Authority. The Government, however, is not bound by the said assurance as it was not expressed to be made by the Governor. It is well settled that, when a statute provides a particular method by which a contract should be made, there must be compliance with the provisions of the Statute. (https://www.paksearch.com/Government/CORPORATE/Contract/C16.htm)

Contract with Government not executed on proper form---Contract not void. When a particular form has been prescribed for execution of contracts with the Government or where it is prescribed that the contract should be in the name of a particulars person as was done by S. 175 (3) of the Government of India Act, 1935 or S. 135, Constitution of Pakistan, 1956, the observance of the forms is not mandatory and their non-compliance does not render the document, or instrument void. (https://www.paksearch.com/Government/CORPORATE/Contract/C17.htm)

Document constituting contract envisaging another contract--.Whether such subsequent contract is condition precedent to the earlier contract depends on terms of contract. If the documents or letter relied on as constituting a contract contemplated the execution of a further contract between the parties, it is a question of construction whether the execution of the further contract is a condition or term of the bargain or whether it is a mere expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through. In the former case there is no enforceable contract either because the condition is unfulfilled or because the law does not recognise a contract to enter into a contract. In the latter case there is a binding contract and the reference to the more formal document may be ignored. (https://www.paksearch.com/Government/CORPORATE/Contract/C18.htm)

Obligation inconsistent with terms of contract---Not to be implied in contract. Held: no obligation can be implied in a contract inconsistently with its expressed terms. (https://www.paksearch.com/Government/CORPORATE/Contract/C19.htm)

Legal and illegal agreement entered into at the same time.--Illegal agreement not to be effective if legal agreement fails--Illegal agreement is void---Legal agreement is good so far as it goes. If two persons enter into a perfectly legal agreement and at the same time provide that if this agreement fails then another agreement which the law does not permit will come into existence, the legal agreement does not become illegal because of such a provision. The illegal clause, which is in fact an agreement in the alternative, will remain void and ineffective whereas the other agreement will continue to be effective. (https://www.paksearch.com/Government/CORPORATE/Contract/C20.htm)

Law applicable---Contract entered into in one country to be performed in another---Law of which country applicable---Presumption and principles discussed. Where a contract is entered into in one country and is to be performed in another country the following principles would determine the law applicable to the contract.

Prima facie the proper law of the contract is presumed to be the law of the country where the contract is made (lex loci contractus). This presumption applies wholly in the country where it is made or may be performed anywhere, or performed in another country. This is the first presumption.

The second presumption is :--

"When the contract is made in one country, and it is to be performed either wholly or partly in another, then the proper law of the contract may be presumed to be the law of the country where the performance is to take place (lex loci solutionis).
Then again in order to determine which law will apply it shall have to be gathered from the intention of the parties in the contract. When the intention of the parties to a contract, as to the law governing the contract, is expressed in words, this expressed intention determines the proper law of contract and in general overrides every presumption. (https://www.paksearch.com/Government/CORPORATE/Contract/C21.htm)

Law applicable to contract entered into foreign country---Principle stated. In Private International Law, it is often the case that the rights and obligations arising out of a contract entered into in a re, reign State are governed by lax loci contractus, namely the law of the country where the contract was made. However, whether the law of the country where the contract was made or whether the law of the country where it is to be executed will govern the case, is a matter which would be usually decided according to the intention of the parties. (https://www.paksearch.com/Government/CORPORATE/Contract/C22.htm)

Transfer of movable property---Transfer affected by distributors and confirmed by owner---Both owner and distributor are transferors. Where in the case of rights in a cinema film, the transfer of rights was effected by the distributor and confirmed by the producer-owner of the film. It was held that the confirming party also became the transferor in the eye of law. (https://www.paksearch.com/Government/CORPORATE/Contract/C23.htm)

Indent business---Relationship between indentors, indent merchant and foreign supplier is determined by terms of contract. In cases arising out of indent business the relationship between the various parties should be determined on the construction of the terms of the contract entered into between them. (https://www.paksearch.com/Government/CORPORATE/Contract/C24.htm)

Relationship of indentor and foreign supplier---Direct Letter of Credit issued to supplier---Goods shipped direct to indentor---Contract is between them---Indent merchant acts as commission agent only. Where the indentor opened a letter of credit in favour of the foreign supplier and the foreign supplier shipped the goods direct to the indentor. It would be clearly a case of contract to supply the goods between those parties and the indent merchant would only be in the position of a commission agent. (file:///D:/Contract/C24.htm)

Form of---Parties deliberately making contract in a particular form with ulterior motive---Must take the consequences. When the parties deliberately gave a particular form to a contract to evade income-tax. It was held that if the parties deliberately chose to give the transaction a particular form they must take the consequences. They cannot advance their case by pleading that the intention was to commit a fraud on the law relating to income-tax. A party to a fraud is not, except in circumstances with which we are not here concerned, allowed to plead his own fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/C26.htm)

Misapprehension of terms of contract---Rights of parties not affected. If there was no misrepresentation and both parties had been labouring under a misapprehension that the contract had been cancelled, the abandonment due to a mutual mistake, would not affect the plaintiff's rights. (https://www.paksearch.com/Government/CORPORATE/Contract/C27.htm)

Misrepresentation by one party---Other party abandoning claim---Rights of latter not effected. If one of the parties to a contract abandons his claim on the basis of a misrepresentation made by the other party. It was held that the abandonment by it is of no legal effect. (https://www.paksearch.com/Government/CORPORATE/Contract/C28.htm)

Licence for sale of liquor---Not a contract---Licence is only a privilege. The arrangement by which a liquor licensee was enabled to sell excisable liquor under a licence, cannot be described as a contract. A licence is in the nature of a privilege conferred to do that which it would not have been permissible for the licensee to do otherwise. (https://www.paksearch.com/Government/CORPORATE/Contract/C29.htm)

Company, contract with---Presumption of act being properly done by company may be raised---Doctrine of indoor management. Broadly and briefly stated, the doctrine of "indoor management" is to the effect that persons contracting with a Company and dealing in good faith may assume that acts within its constitution and powers have been properly and duly performed and are not bound to inquire whether acts of internal management have been regularly done. Thus where the lease was made by the Secretary of the Company, the lessee was not required to inquire as to whether in fact the Society had approved the terms which were being offered to him in writing by the Honorary Secretary of the Society. Even if there was no delegation of the necessary powers in favour of the Secretary or the delegation was not valid on account of its inconsistency with any rule or bye-law of the Society, the transaction appears to be saved by what is known as the doctrine of "indoor management". (https://www.paksearch.com/Government/CORPORATE/Contract/C30.htm)

Sale by major in consideration of debt contracted during minority--Not a ratification of void contract---Sale valid. Where a minor after attaining majority executed a sale-deed stating that he, during minority, incurred debts for his maintenance, necessities of life and payment of revenue, etc. The sale document was challenged to be Void as being a ratification of a void contract.

Held: A sale is a complete demise and as such when a sale has taken place it has passed the stage of contract the analogy of void contract is not available. (https://www.paksearch.com/Government/CORPORATE/Contract/C31.htm)

Arbitration clause in contract---Interpretation of. The words of the arbitration clause should be given reasonable, ordinary, natural meaning and not extended meaning. The extended meaning must be kept within bounds. (https://www.paksearch.com/Government/CORPORATE/Contract/C32.htm)

Written contract---Oral evidence as to interpretation of terms of contract---Not ordinarily admitted. Held: When parties entered into a written contract, the Court would be very slow to import oral evidence for a decision on the interpretation of the terms of the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/C33.htm)

Earnest money---May be forfeited in case of breach of contract. Held: This amount of Rs. 5,000, though described as an advance was of the same nature as a deposit or earnest money. Such an amount is paid as a guarantee for the performance of the contract. When the contract is performed it goes as part of the price and when it is broken it is liable to be forfeited. (https://www.paksearch.com/Government/CORPORATE/Contract/C34.htm)

Earnet money---Bank guarantee is earnest money---Forfeiture of money guaranteed may be ordered. An earnest ordinarily means a tangible thing including a deposit, it will be restricting its meaning too much if deposit only is said to be the subject-matter of earnest. The mordern trend in commerce is to take extensive advantage of facilities offered by banks. It is more advantageous for buyers to furnish Bank guarantees than to make deposits of cash money as earnest for fulfillment of the terms of contracts of the purchase. The denial to the sellers of the right to forfeit the amounts covered by Bank guarantees in case of breach of contract by the purchasers would result in reversing the trend and that will be in nobody's interest. (https://www.paksearch.com/Government/CORPORATE/Contract/C35.htm)

Terms of contract---Unilateral addition to terms not permissible. (https://www.paksearch.com/Government/CORPORATE/Contract/C36.htm)

Agreement to sell immovable property---Part payment of purchase money mentioned in agreement---Registration not necessary. A contract of sale of immovable property though it contains a recital of payment of a part of purchase money of more than Rs. 100 by the proposed vendee, does not require registration. (https://www.paksearch.com/Government/CORPORATE/Contract/C37.htm)

Implied terms---When may be read into a contract---Agreement of parties on such term necessary. Whether an implication should or should not be made in a particular case depends on and must be answered with reference to the special facts and circumstances of a case but the principles which should guide us in the matter have been laid down in several leading cases. The principle is well settled that a stipulation not expressed in a written contract should not be implied merely because the Court thinks that it would be reasonable thing to imply it. Such an implication can be made only if, on a consideration of the terms of the contract in a reasonable and business like manner, the Court is satisfied that it should necessarily have been intended by the parties when the contract was made. The power of the Court of implying terms which the parties have not expressed should be exercised very sparingly and only in cases of necessity. (https://www.paksearch.com/Government/CORPORATE/Contract/C38.htm)

Agreement to reconvey property---Whole property must be reconveyed---Suit for reconveyance of part of property---Not maintainable. Every contract not only creates a right but also corresponding obligation in another. Here the right of repurchase has created a corresponding obligation on the vendee to reconvey the property. He cannot reconvey, or it will be wrong to force him to reconvey, only a portion of it nor under the law he can reconvey any portion of it because the obligation is one and whole. Similarly, here the right created by the agreement for reconveyance is joint and several and any one of them can enforce it in respect of whole and cannot enforce it in respect of his share only. If any one of the co-contractors wants to enforce the specific performance of contract for reconveyance he is to enforce it as a whole on payment of the entire consideration money and there will be no variation of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C39.htm)

Agreement of reconveyance not signed by vendor but sub-registrar certifying agreement of vendor to terms of agreement---Agreement is not unilateral---Binding on parties. Where it was urged that the agreement, of reconveyance of property was unilateral and as such not binding on the party because it was not signed by the vendor.

Held: Though the signature of the vendor did not appear on the agreement yet it did appear on the back of the agreement and there was an endorsement by the Deputy Registrar to the effect that the vendor had agreed to the agreement. Therefore, the agreement could not be held to be unilateral and as such void. (https://www.paksearch.com/Government/CORPORATE/Contract/C40.htm)

Completion of---Enforcement of contract---Acceptance and offer---Communication of---Non-receipt by proposer contract---Completion of...Acceptance of offer---Communication of---Non-receipt of acceptance by proposer---Effect of---Respondent was higher bidder in an open auction held by appellant in respect of plot of land---1/3rd amount of total sale price paid by respondent on spot---Possession of plot was also delivered to respondent on spot---Balance price had to be paid by respondent on receipt of letter of acceptance of bid from appellant---Letter of acceptance despatched by appellant but respondent never received same---Appellant cancelled sale of plot---Appellant never revoked acceptance---Respondent was willing to perform his part of contract---Suit for declaration that appellant-defendant was leaned to communicate and plaintiff-respondent was entitled to' receive formal acceptance of their bid brought by respondent---Suit was decreed by civil Court and appellate Court affirmed finding of civil Court---Second appeal dismissed by High Court as being without any merit, however respondent was also bound to perform his part of contract within six weeks. (https://www.paksearch.com/Government/CORPORATE/Contract/C41.htm)

Hire purchase agreement---No clause in contract providing penalty for subletting premises---Contract cannot be rescinded for subletting. Held: As the hire purchase agreement for the bonus did not permit subletting but no penalty was prescribed for it, the Government could not rescined the contract because the hire purchaser had sublet it. (https://www.paksearch.com/Government/CORPORATE/Contract/C42.htm)

Letter of credit issued on basis of contract---Draft of consignment and bill of exchange negotiated---Subsequent amendment to letter of credit does not reduce liability of buyer. Where in accordance with the letter of credit, the Draft, the Bill of Exchange and Bill of Lading and other documents were negotiated. Thereafter the defendant allegedly amended the letter of credit. Held: The defendants could not raise the question of the belated amended letter of credit to avoid their liability. (https://www.paksearch.com/Government/CORPORATE/Contract/C43.htm)

Contract of sale of immovable property---Question whether time was of essence of contract is a question of intention of parties---Its determination depends upon terms of contract, conduct of parties before executing contract and surrounding circumstances---It is not a pure question of law but a question of fact---If not raised before trial Court, it cannot be raised in second appeal u/s. 100 before High Court or in leave proceedings before Supreme Court. (https://www.paksearch.com/Government/CORPORATE/Contract/C44.htm)

Barter contract---Law regarding---Sale of Goods Act, 1930 (III of 1930)---Non-applicability of---Law on sale of goods though codified in form of special statute (known as Sale of Goods Act, 1930), no such statute (enacted) or case law (developed) to guide courts in respect of barter contracts---Held: Sale of Goods Act as such of its force not to be attracted to such barter contracts---Held further: Consideration in barter agreement being goods exchanged for goods on either side, no monetary consideration to be involved there (in contradiction to case of sale of goods where monetary consideration to be sine qua non in our law). (https://www.paksearch.com/Government/CORPORATE/Contract/C45.htm)

Hire-purchase---Contract must vest the ownership of goods in the vendor till payment is made---Ownership transferred---Contract not of hire-purchase. In the case of sale of movable property the ordinary presumption would be that property in the apparatus which was subject Of the contract passed to the alleged "hire-purchaser" when the contract was made, it being immaterial whether the time of payment of the price was postponed beyond the date of the contract. Reference in this connection may be made to section 20 of the Sale of Goods Act, 1930 which is relatable to an "unconditional contract for the sale of specific goods", but embodies a principle which may be extended to cover a case where there are terms in the contract which purport to retain ownership in the vendor until the fulfillment of a certain condition relating to the price, alongside with other conditions from which an equally clear conclusion may be drawn that ownership in the goods became vested in the vendee upon the making of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C46.htm)

Letter of credit---Bill of Lading---Non-payment---Appellant firm entering into general agreement with a foreign firm to export frozen shrimps of consignment basis to be paid for by means of opening letters of credit---Being in need of funds to finance export, appellant firm obtaining overdraft, called packing credit, from respondent-Bank against lien of letter of credit and on security of shipment to be made under letter of credit---A foreign Bank on instructions of purchaser opening an irrevocable letter of credit in favour of appellant-firm---Letter of credit in question bearing a specified date for expiry and respondent-Bank instructed to advise appellant firm of opening of letter of credit---Appellant firm negotiating documents called for by letter of credit together with a bill of exchange drawn on buyer---Bill of lading drawn to order of respondent-Bank and not to order of foreign Bank as required under credit---Respondent-Bank, forwarding shipping documents together with Bill of Exchange duly negotiated to foreign Bank for payment however forwarding only two copies of bill of lading instead of required full set of three---Foreign Bank declining to make payment for want of third copy---Third copy eventually sent by respondent-Bank to foreign Bank but reaching after expiry of period specified in such regard and foreign Bank again declining to make payment---Appellant-firm having supplied respondent Bank full set of three copies of Bill of Lading, respondent Bank, held, Committed negligence and lost its right to recourse under arrangements entered into with appellant firm. (https://www.paksearch.com/Government/CORPORATE/Contract/C47.htm)

Damages---Defendant's announcement in paper inviting research papers offering prize for best paper---Plaintiff sending his research paper but receiving no reply about acceptability or otherwise---Plaintiff's claim that contract between parties had been completed and as such he was entitled to amount claimed---No contract concluded between parties---No letter filed to indicate that paper submitted by plaintiff was accepted as the best research paper---Even if his paper had been accepted and prize had not been paid, he could not claim damages---Suit for claiming damages, held, was not maintainable in circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/C48.htm)

Agreement to sell---Effect of---Held · Agreement to sell by its nature being mere promise to do needful in future, no title in property to be conceived to have flown therefrom (in favour of party relying on such agreement). (https://www.paksearch.com/Government/CORPORATE/Contract/C49.htm)

S. 10 read with the Revenue Act, 1967 (W.P. Act XVII of 1967)---S. 42---Contract---Legality of---Challenge to---Sale deed allegedly executed in favour of son not given effect in revenue record in life time of seller and till further period of about four years after his death---Held: Consent of seller having not been freely given, deed (in dispute) not to be genuine one. (https://www.paksearch.com/Government/CORPORATE/Contract/C50.htm)

Suit for pre-emption---Non-deposit of balance amount---Consent decree---Respondent, pre-emptor as ordered in consent decree failing to deposit balance amount by the prescribed date and Appellate Court not passing any interim order to stay deposit of the amount---Proposition that if the amount, during pendency of appeal, was not deposited, the same became invalid as the suit stood dismissed cannot be regarded as valid as an appeal is a continuation of the suit and Appellate Court has power to extend time for depositing pre-emption money in which event original decree is varied to that extent---Held, mere non-deposit of balance amount under decree of Court of first instance before the decision of appeal, could not be regarded as fatal---Trial Court fell into an error in holding that the suit stood dismissed by default in payment of balance of pre-emption money and that the appeal against decree consequently abated---Consent judgment or order is not less than a contract and is subject to incidents of a contract because there is superadded command of the Court and its force and effect derives from contract between the parties leading to, or evidenced by, or incorporated in, the consent judgment or order---Consent judgment obtained by fraud or collusion would be a nullity if fraud was established---Setting aside compromise decree, in such a case, was not, however, warranted as it per se showed that not only the appellant but the Court itself was aware of the non-deposit of balance amount---Trial Court, therefore, fell into an error in not noticing that feature from the order itself---Decision of appeal having turned on the second question it was not necessary to consider the first one---Appeal dismissed and respondent allowed to deposit the pre-emption money or its balance under the impugned decree. (https://www.paksearch.com/Government/CORPORATE/Contract/C51.htm)

Privity of contract---Contended that even if agreement is considered to have been entered into by applicants and buyers on principal to principal basis, first respondent would still be party---Contention repelled as being devoid of any merit---Held, if a contract .is between two executants on principal to principal basis, first respondent cannot be treated as a party to contract unless it is shown that contract was executed by buyers also on behalf of first respondent---Held further, first respondent was not able to show how a contract of nature and terms of agreement involved in instant case violated any provision of Foreign Exchange Regulation Act/1947. (https://www.paksearch.com/Government/CORPORATE/Contract/C52.htm)

Government contracts for cutting and lifting wood from forest---Chief Conservator of Forests is competent authority to execute contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C53.htm)

Omission by a party to sign agreement for sale of property for valuable consideration which was reduced in writing and was acted upon---Does not warrant inference that a valid agreement did not exist. (https://www.paksearch.com/Government/CORPORATE/Contract/C54.htm)

Suit---Contract entered into by parties as to manner in which suit .between them would be decided---Held, not illegal---Parties undertaking to be bound by verdict of Local Commissioner appointed on their request---No valid exception can be taken to disposal of suit on basis of report of such Local Commissioner---Civil Procedure Code (V of 1908), O. XXVI, r. 9. (https://www.paksearch.com/Government/CORPORATE/Contract/C55.htm)

Agreement---Contract---Undue influence---Appellants challenging agreement being vitiated on account of old age and mental infirmity of seller---Seller, predecessor-in-interest of appellants, only once having attack of paralysis and continuing profession of photography never lacking mental fitness---Held: none of ingredients of S. 16 being proved, contention of no avail. (https://www.paksearch.com/Government/CORPORATE/Contract/C56.htm)

Foreign contract---Recovery of debt payable in foreign currency---Material date for calculating amount of debt in local currency would be the date on which each installment of entire debt became due in absence of any provision in contract or where action could be brought under law expressing dues in foreign currency or decree could be passed in foreign country---Devaluation of currency resulting change in rate of exchange---Amounts of installments that became due before date of devaluation of Pakistani Rupees, held to be calculated at rate of exchange prevailing on dates when each installment became due. (https://www.paksearch.com/Government/CORPORATE/Contract/C57.htm)

Sale of goods---It cannot be disputed that in cases of contract for sale of goods time is normally considered the essence of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C58.htm)

Contract of guarantee---Contention that liability against borrower having been extinguished or lapsed by efflux of time and by cessation of East Pakistan emerging out as a separate and independent country named Bangla Desh, contract of guarantee was rendered void due to impossibility of its performance---Repelled as being devoid of force---Held---(i) Notwithstanding remedy against borrower having become barred by operation of law as a result of new situation having arisen due to events that have taken place in instant case, remedy against borrower by virtue of letter of guarantee read with S. 13 (Contract Act 1872) would be available to lender bank---(ii) S. 20 CPC also gives jurisdiction to Contract as borrower had a sub-office at Karachi and cause of action having arisen to lender bank against guarantor on service of notice of demand at Karachi and guarantor, at commencement of suit, actually and voluntarily residing or carrying on business at Karachi. (https://www.paksearch.com/Government/CORPORATE/Contract/C59.htm)

Written agreement acted upon by parties---Absence of signature of one party on agreement immaterial---Contract valid and binding. Held: The agreement between the parties was reduced to writing. Both the parties accepted its terms and have partially carried them out. In view of this the contract in dispute is established between them and the respondents are entitled to enforce it. Even when the agreement has been not signed by one of the parties to it. (https://www.paksearch.com/Government/CORPORATE/Contract/C60.htm)

11. Who are competent to contract. Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind, and is not disqualified from contracting by any law to which he is subject.

This section deals with personal capacity in three distinct branches: (a) disqualification by infancy; (b) disqualification by insanity; (c) other special disqualifications by personal law.

"To Contract."---That is, to bind himself by promise. A minor who gives value, without promising any further performance, to a person competent to contract is entitled to sue him for the promised equivalent. This may be properly not in contract but on a quasi-contract under S. 70.

Infancy.---As to infancy, the terms of the Act , as compared with the Common Law, were long a source of grave difficulty. By the Common Law an infant's contract is generally not void but voidable at his option, if it appears to the Court to be for his benefit, it may be binding, and especially if the contract is for necessaries. There was formerly, however, a current opinion, countenanced by the lax forms in which some of the decisions were expressed, that infants' agreements were of three kinds: namely, that some were wholly void as being obviously not for the infant's benefit, some valid as being obviously for his benefit, and all others voidable. This opinion is now quite exploded, but it was to be found in text-books the time when the Contract Act was framed. Still, there was never any authority fox saying that infants were absolutely incompetent to contract. The literal construction of the present section requires being of the age of majority according to one's personal law as a necessary element of contractual capacity. Since, however, the Act, as a whole, purports to consolidate the English law of contracts, with only such alteration as local circumstances require, and there is no trace in the report prefixed to the original draft, or any other relative document of any intention to make a new rule as to the contracts of minors, the Indian High Courts endeavoured to avoid a construction involving so wide a departure from the law to which they had been accustomed; but the Privy Council in 1903 declared that the literal construction is correct, and suggested that it was intended to give effect to the rule of Hindu law on the subject. (https://www.paksearch.com/Government/CORPORATE/Contract/C61.htm)

We may mention that in England the powers of infants to contract and to ratify their contracts have been much restrained by the Infants' Relief Act, 1874, a statute of good intentions and imperfect workmanship; and the Sale of Goods Act, 1893, S. 2 has declared the liability of infants to pay a reasonable price for necessaries sold and delivered to them, and has defined necessaries according to the latest and best judicial authorities. These enactments, of course, have no authority in India, and can be referred to only for the purpose of illustrating the common law rules. The result of the statutes is to bring the English law much nearer to the Anglo-Indian, for most practical purposes, than it might seem at first sight. We proceed to the details of the Anglo-Indian law.

Age of majority.---This is now regulated by the Indian Majority Act, 1875. S. 3 of the Act declares that every person domiciled in India shall be deemed to have attained his majority when he shall have completed his age of eighteen years, and not before. In the case, however, of a minor of whose person or property or both a guardian has been appointed by a Court, or of whose property the superintendence is assumed by a Court of Wards, before the minor has attained the age of eighteen years, the Act provides that the age of majority shall be deemed to have been attained on the minor completing his age of twenty-one years. S. 2 of the Act declares that nothing in the Act contained shall affect the capacity of any person to act in matters of marriage, dower, divorce, and adoption. An order discharging the guardian of a minor under S. 48 of the Guardians and Wards Act, 1890, does not terminate the minority when it is obtained by fraud practised upon the Court by a third party.

"Law to which he is subject."---The age of majority as well as the disqualification from contracting is to be determined by the law to which the contracting party is subject. The following examples show that the Indian Courts recognize that all cases may not be governed by the same rule. (https://www.paksearch.com/Government/CORPORATE/Contract/C62.htm) A Hindu widow above the age of sixteen and under the age of eighteen years, whose husband had his domicile in British India, executed a bond in Kolhapur (outside British India), where she was then residing. As the widow had not changed her domicile after the husband's death, her domicile was the same as that of her husband at his death, namely, British India. The question arose whether her liability on the bond was to be governed by the law of Kolhapur (lex loci contractus), or by the law of British India (Law of domicile). According to the law obtaining in Kolhapur, which is Hindu law unaffected by the Contract Act, she would have been liable on the bond, as the age of majority according to that law is sixteen years, and the bond was executed by her after she completed her sixteenth year. According to the law in British India, namely, the Contract Act, she was not liable, as the contract was made when she was under the age of eighteen years, and was not ratified by her after she attained her majority. It was held that her capacity to contract was regulated by the Contract Act, being the law of her domicile, and that under the Act she was not liable on the bond. But the Madras High Court has held that where a person aged eighteen domiciled in British India endorsed certain negotiable instruments in Ceylon, by the laws of which he was a minor, he was not liable as an endorsee, the contract being a mercantile one and governed by the lex loci contractus. (https://www.paksearch.com/Government/CORPORATE/Contract/C63.htm)

Minor's agreement.---If the first branch of the rule laid down in the section be converted into a negative proposition, it reads thus: No person is competent to contract who is trot of the age of majority according to the law to which he is subject: in other words, a minor is not competent to contract. This proposition is capable of two constructions · either that a minor is absolutely incompetent to contract, in which case his agreement is void, or that he is incompetent to contract only in the sense that he is not liable on the contract though the other party is, in which case there is a voidable contract. If the agreement is void, the minor can neither sue nor be sued upon it, and the contract is not capable of ratification in any manner; (https://www.paksearch.com/Government/CORPORATE/Contract/C64.htm) if it is voidable, he can sue upon it, though he cannot be sued by the other party, and the contract be ratified by the minor on his attaining majority. The former current of Indian decisions was that, as under the English law, a minor's contract is only voidable at his option. Although an agreement with a minor is void, a compromise of a suit to which a minor is a party and which is made a decree of the Court is not void but voidable. If therefore, the minor desires to enforce it, it is not open to the defendant to plead that the compromise was void on the ground that the guardian did not obtain the consent of the Court. (https://www.paksearch.com/Government/CORPORATE/Contract/C65.htm)

All contracts in India made by an infant are void. In Raj Rani v. Prem Adib (https://www.paksearch.com/Government/CORPORATE/Contract/C66.htm) a film producer entered into an agreement with a minor girl to act in a film, and the same agreement was entered into by the father of the minor on her behalf with the producer. On a breach of the agreement, the minor sued the producer through her father as next friend. Desai J. held that the agreement with the father was void, seeing that the consideration moving from the father was the minor's promise to act, and as the minor could not in law promise, there was no consideration. On the other hand, had the consideration moved from the father in the shape of an undertaking by him that his daughter should act, the father could have sued, but could recover only the damages he had suffered.

Fradulent Representation.---The decision has been regarded by the Indian Courts as an authority that the circumstances of a particular case may be such that, having regard to S. 41 of the Specific Relief Act, the Court may, on adjudging the cancellation of an instrument at the instance of a minor, require the minor to make compensation to the other party to the instrument. (https://www.paksearch.com/Government/CORPORATE/Contract/C67.htm) It has accordingly been held that where a mortgage of his property by a minor is set aside by the Court, the Court may order compensation to the lender if the loan was obtained by the minor by fraudulently representing that he was of full age. (https://www.paksearch.com/Government/CORPORATE/Contract/C68.htm) It has similarly been held that where a sale of his property by a minor, which, of course, is void under the Privy Council ruling, is set aside by the Court, the Court may, if satisfied that the sale was procured by the minor by a fraudulent misrepresentation as to his age, direct the minor to make compensation to the purchaser. (https://www.paksearch.com/Government/CORPORATE/Contract/C69.htm) There appears to be some difference of judicial opinion whether something in the nature of fraud on the part of the minor must be shown before the Court will exercise the powers given it under S. 41. (https://www.paksearch.com/Government/CORPORATE/Contract/C70.htm) It is submitted that the Court's discretion is not to be fettered, though, no doubt, it will always be more ready to exercise its discretion where the element of fraud is present.

Where however an infant retains property obtained under the contract from the other party, the equitable remedy of restitution has been applied, even though the infant made no false representation as to his age.

S. 41 of the Specific Relief Act, as already observed, gives the Court power "to make any compensation which justice may require" in cases where cancellation of a void or voidable written instrument is ordered. The Lahore High Court has held that the power to give equitable relief is more extensive in India than in England and ordered a money compensation in a case where the infant had misrepresented his age. (https://www.paksearch.com/Government/CORPORATE/Contract/C71.htm) In a later Full Benched case of the Allahabad High Court the Indian and English decisions were exhaustively reviewed and it was held that where money had been borrowed by two minors under a mortgage deed with a fraudulent concealment of their age, the mortgagee was not entitled to a mortgage decree, nor was he entitled 1o a decree for the principal money under any equitable principles other than those recognized in England. This is also the view taken by the Nagpur High Court. (https://www.paksearch.com/Government/CORPORATE/Contract/C72.htm) It is submitted that the judgment of Shadi Lal, C.J., in the Lahore case is the more correct. In India the Court derives its power from a statutory enactment which is expressed in the widest terms, and the word used is "compensation" not "restitution". In ordering compensation the Court is not necessarily giving effect to a contract which is in law a nullity, but is doing its best to put the parties, so far as possible, in the position which they occupied before the void transaction took place and from which one of them was only induced to depart by reason of the minor's fraud. Thus in no circumstances can a claim for interest be allowed as part of the compensation; for that would be to enforce one the stipulations of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C73.htm) The nature of the compensation "which justice may require" must depend on the circumstances of each case, and there is nothing which requires that justice to be interpreted as the exact counterpart of the English rules of equity.

Estoppel.---If a minor procures a loan or enters into any other agreement by representing that he is of full age, is he estopped by S. 115 of the Evidence Act,. 1872 from setting up that he was a minor when he executed the mortgage? The point was raised but not decided, in Mohari Bibee’s case. (https://www.paksearch.com/Government/CORPORATE/Contract/C74.htm) In that case the Privy Council said: "The Courts below seem to have decided that this section does not apply to infants; but their lordships do not think it necessary to deal with that question now. They consider it clear that the section does not apply to a case like the present, where the statement relied upon is made to a person who knows the real facts and is not misled by the untrue statement. There can be no estoppel where the truth of the matter is known to both parties, and their lordships hold, in accordance with English authorities, that a false representation, made to a person who knows it to be false, is not such a fraud as to take away the privilege of infancy." There were many conflicting decision whether a minor could be estopped by a false representation as to his age. But the question is now settled by the case of Sadik Ali Khan (https://www.paksearch.com/Government/CORPORATE/Contract/C75.htm) where the Privy Council observed that a deed executed by a minor is a nullity and incapable of founding a plea of estoppel. The principle underlying the decision is that there can be no estopped against a statute. The Bombay High Court has since this case reversed its former course of decisions. (https://www.paksearch.com/Government/CORPORATE/Contract/C76.htm)

Ratification.---As it is now finally settled that a minor's agreement is void, it follows that there can be no question of ratifying it. (https://www.paksearch.com/Government/CORPORATE/Contract/C77.htm) Upon the same principle a promissory note given by a person on attaining majority in settlement of an earlier one signed by him while a minor in consideration of money then received from the obligee cannot be enforced in law. Such a note, the Madras High Court holds, is void for want of consideration.

Payment of debt incurred during minority.--- Where a person on attaining majority pays of debt incurred by him during minority, no question of ratification of a contract arises, since an agreement with a minor is merely void and not unlawful, the sum paid cannot be sued for subsequently, and in law it must be regarded on the same footing as a gift. (https://www.paksearch.com/Government/CORPORATE/Contract/C78.htm)

Specific performance.---A minor's agreement being now decided to be void, it is clear that there is no agreement to be specifically enforced; and it is unnecessary to refer to former decisions and distinctions, following English authorities which were applicable only on the view now overruled by the Privy Council. The guardian of a minor unless competent to do so has no power to bind the minor by a contract for the purchase or sale of immovable property, and the minor therefore is not entitled to specific performance of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C79.htm) In the course of the judgment their Lordships said: "They are, however, of opinion that it is not within the competence of a manager of a minor's estate or within the competence of a guardian of a minor to bind the minor or the minor's estate by a contract for the purchase of immovable property, and they are further of opinion that as the minor in the present case was not bound by the contract, there was no mutuality and that the minor who has now reached his majority cannot obtain specific performance of the contract." It is, however, different with regard to contracts entered into on behalf of a minor by his guardian or by a manager of his estate, where the guardian or manager, as under Hindu Law, is competent to alienate property. In such a case it has been held by the Privy Council that the contract can be specifically enforced by or against the minor, if the contract is one which it is within the competence of the guardian to enter into on his behalf so as to bind him by it, and further, if it is for the benefit of the minor. (https://www.paksearch.com/Government/CORPORATE/Contract/C80.htm) But if either of these two conditions is wanting, the contract cannot be specifically enforced at all. (https://www.paksearch.com/Government/CORPORATE/Contract/C81.htm)

It is also within the competence of a certificated guardian appointed by statute, such as the Guardian and Wards Act, 1890, or the various Courts of Wards Acts to enter into a contract for the purchase or sale of immovable property on behalf of the minor with the sanction of the Court. (https://www.paksearch.com/Government/CORPORATE/Contract/C82.htm)

"Of sound mind.---See S. 12, for the definition of soundness of mind. By English law a lunatic's contract is not void, but voidable at his option, and this only if the other party had notice of his insanity at the time of making the contract. But after the decision that this section makes a minor's agreement wholly void, it is clear that a person of unsound mind must in India be held absolutely incompetent to contract. And it has in fact been held to be so in a Madras case. The supply of necessaries to lunatics, among other persons "incapable of entering into a contract," is dealt with by S. 68 of the Act; see the illustrations.

Persons otherwise "disqualified from contracting."---The capacity of a woman to contract is not affected by her marriage either under the Hindu or Muhammadan law. A Hindu female is not, on account of her sex, absolutely disqualified from entering into a contract; and marriage, whatever other effet it may have, does not take away or destroy any capacity possessed by her in that respect. It is not necessary to the validity of the contract that her husband should have consented to it. When she enters into a contract with the consent or authority of her husband, she acts as his agent, and binds him by her act; and she may bind him by her contract, in certain circumstances, even without his authority, the law empowering her on the ground of necessity to pledge her husband's credit. Otherwise a married woman cannot bind her husband without his authority, but she is then liable on the contract. to the extent of her stridhanam (separate property). Similarly, a married Hindu woman may contract jointly with her husband, but then she is liable to the extent of her stridhanam only. In the same way a married Muhammadan woman is not by reason of her marriage disqualified from entering into a contract.

Turning next to persons of other denominations, there are two Indian enactments that create the separate property of married women, and impliedly confer upon them, as an incident of such property, the capacity to contract in respect thereof. The one is the Indian Succession Act, 1925, sec. 20, and the other the Married Women's Property Act, 1874. Both these enactments apply to the whole of India. S. 20 of the Succession Act provides that no person shall by marriage acquire any interest in the property of the person whom he or she marries, nor become incapable of doing any act in respect of his or her own property which he or she could have done if unmarried. The effect of this was that on or after January 1st, 1866, all married women to whose marriages the Act applied became absolute owners of all property vested in, or acquire any interest in their husband did not by their marriage acquire any interest in such property. It was subsequently considered expedient to make due provision for the enjoyment of wages and earnings by women married before 1866, and Married Women's Property Act enacted that the wages and earnings of any married woman acquired or gained by her after the passing of that Act in any employment, occupation, or trade carried on by her, and all money or other property acquired by her through the exercise of any literary, artistic, or scientific skill, should be deemed to be her separate property (S. 4). The Act also provides that a married woman may sue and may be sued in her own name in respect of her separate property (S. 7), and that a person entering into a contract with her with reference to such property may sue her, and to the extent of her separate property recover against her, as if she were unmarried (S. 8).

Certain classes of persons may be disqualified under certain enactments from entering into contracts in respect of matters specified in those enactments. Thus where a person in Oudh is declared a "disqualified proprietor" under the provisions of the Oudh Land Revenue Act, 1876, he is not competent to alienate his property, and the same incapacity extends to contracts entered into by him, though they relate to property situate outside the province of Oudh. (https://www.paksearch.com/Government/CORPORATE/Contract/C83.htm)

'Hiba bil-i-iwaz'---If minor can pay consideration for gift. The minor was held to have paid consideration for the hiba made to her and as such the gift was held to be valid. (https://www.paksearch.com/Government/CORPORATE/Contract/C84.htm)

Right of maintenance---Minor cannot contract himself out of statutory right through his mother. Where the mother of the minors made a compromise with her husband so as to give up her right under S. 488, Cr.P.C. to receive maintenance of the minors. It was held that the right of a minor to receive maintenance under section 488, Cr.P.C. is inalienable. A minor cannot contract himself out of it either himself or through any other person including his mother for the short and sensible reason that the minor is incompetent to enter into a contract. (https://www.paksearch.com/Government/CORPORATE/Contract/C85.htm)

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

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

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

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

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

Burden of proof.---The difficulty of understanding what is really the effect of this section, in conjunction with S. 11, has already been pointed out. The presence or absence of the capacity mentioned in this section at the time of making the contract is in all cases a question of fact. (https://www.paksearch.com/Government/CORPORATE/Contract/C86.htm) Where a person is usually of unsound mind, the burden of proving that at the time he was of sound mind lies on the person who affirms it. In cases, however, of drunkenness or delirium from fever or other causes, the onus lies on the party who sets up that disability to prove that it existed at the time of the contract. Questions of undue influence and of incapacity by reason of unsoundness of mind must not be mixed up, involving as they do totally different issues.

Contract in lucid interval.---The second paragraph of the section provides that a person who is usually of unsound mind, but occasionally of sound mind, may make a contract when he is of sound mind. Thus even a patient in a lunatic asylum may contract during lucid intervals (see illustration (a)). The question may arise whether a lunatic adjudged to be so under the Lunacy Act, 1912, and of whose property a committee or manager is appointed, can contract during intervals of sound mind. Where, however, a committee or a manager of the estate of a lunatic adjudged to be so is appointed under either of the Acts, no contract can be entered into by a lunatic in respect of his estate, even though at the time of the contract he may be in a lucid interval.

Insanity at the time of entering into agreement,--Party alleging must prove. Where it is alleged that an agreement is void as it was entered into by a party which was incompetent to do so on account of his insanity. It was held that there is a presumption that every one is sane till otherwise proved. Therefore a party who alleges insanity must prove tile same. (https://www.paksearch.com/Government/CORPORATE/Contract/C87.htm)

13. "Consent" defined. Two or more persons are said to consent when they agree upon the same thing in the same sense.

Apparent and real contract---The language of this section is, on the face of it, more of a judicial or expository than of legislative kind. As an authoritative definition it does not seem to define very much. It would need some courage to . maintain that persons can be said to consent when they do not agree upon the same thing, or that if they do not agree in the same sense they can be side to agree in any sense at all.

If the section is to cover all kinds of contracts, as presumably it does, the word "thing" must obviously be taken as widely as possible, though it seems most appropriate where the contract has to do with corporeal property. We must understand by "the same thing" the whole content of the agreement, whether it consists, wholly or in part, of delivery of material objects, or payment, or other executed acts or promises.

Students and young practitioners must be warned not to exaggerate the working importance of cases which are quoted and discussed for the very reason that they are exceptional. Generally parties who have concurred in purporting to express a common intention by certain words cannot be heard to deny that what they did intend was the reasonable effect of those words; and that effect must be determined, if necessary, by the Court, according to the settled rules of interpretation. Whoever becomes a party to a written contract "agrees to be bound, in case of dispute, by the interpretation which a Court of law may put upon the language of the instrument," whatever meaning he may attach to it in his own mind. (https://www.paksearch.com/Government/CORPORATE/Contract/C88.htm) Exceptions to this rule exist, but they are admitted only for special and carefully limited reasons.

Warning is also still needed, having regard to the language current in all but the most modern text-books, against the habit of using the word "mistake" as if it denoted any general legal principle, or was capable, taken alone, of explaining any departure from the normal grounds of decision.

The cases of mistake so far discussed by the learned authors have all been instances of what has been called mutual mistake, that is where the parties have misunderstood one another. For such a mistake to render an agreement void, the mistake must first be as to a term in the agreement. If A buy oats believing them to be old oats when in fact they arc new oats, A cannot plead that the agreement is void for mistake: A must prove that he believed that the seller warranted them to be old oats. The difference, as Blackburn J. put it is between buying a horse believed to be sound, and buying a horse believed to be warranted sound. The former case is one of mistaken motive, giving no relief to the disappointed buyer, whereas in the latter case the buyer has proved the first essential in establishing operative mutual mistake. Secondly the mistake as to a term in the agreement must either be known to the other party, or reasonable in the circumstances.

If both parties are behaving reasonably, but have different things in mind, there is no contract, there the Court, considering the matter objectively, was unable to determine which ship was the contract ship.

Ambiguity.---Sometimes an apparent agreement can be avoided by showing that some term (such as a name applying equally to two different ships) is ambiguous, and there has been a misunderstanding without fault on either side. Such cases, however, are in fact extremely rare. It usually turns out either that the terms have an ascertained sense by which both parties are bound, and there is a contract which neither can dispute, whatever either of them may profess to have thought, or that, when the facts are established, there was really never a proposal accepted according to its terms, and therefore the conditions of a binding contract were not satisfied. Many of the cases cited in the books under the head of mistake belong to the latter class.

Fundamental error.---In certain classes of cases there may be all the usual external evidence of consent, but the apparent consent may have been given under a mistake, which the party is not precluded from showing, and which is so complete as to prevent the formation of any real agreement "upon the same thing". Such fundamental error may relate to the nature of the transaction, to the person dealt with, or to the subject matter of the agreement.

As to the nature of the transaction.---A man who has put his name to an instrument of one kind understanding it to be an instrument of a wholly different kind may be entitled, not only to set it aside against the other party on the ground of any fraud or mis-representation which caused his error, but to treat it as an absolute nullity, under which no right can be acquired against him by any one. There are much older authorities showing that if a deed is falsely read over to an illiterate man, and he executes the deed relying on the false reading as being the true substance of the transaction, his act is wholly void.

We may expect to find fraud as an element in cases of this class. But it is not the decisive element. A signature attached to a document supposed to be of a wholly different kind, or not to contain a clause so important as substantially to alter its character, is invalid unless the signor is estopped by negligence from denying that he understood what he was signing, and this "not merely on the ground of fraud, where fraud exists, but on the ground that the mind of the signor did not accompany the signature; in other words, that he never intended to sign, and therefore in contemplation of law never did sign, the contract to which his name is appended." Neither is fraud a necessary element.

It has been mentioned that a signatory may be estopped by negligence from pleading non est factum. The Court of Appeal has however held that a signatory can treat as a nullity a document in a category different from the one he intended to sign, even though he has been negligent, unless he has in fact signed a negotiable instrument. (https://www.paksearch.com/Government/CORPORATE/Contract/C89.htm) This case has been much criticised, mainly on the ground that it is arbitrary and illogical to hold that the need for the signatory to take care and his consequent liability should ever depend upon the document he has in fact singed, irrespective of what he believed he was signing, when ex hypothesi he is ignorant of its nature.

Consent and estoppel.---The Courts have followed English authority in holding that, in normal circumstances, a man is not allowed to deny that he consented to that which he has in fact done, or enabled to be done with his apparent authority. Thus when a person entrusts to his own man of business a blank paper duly stamped as a bond and signed and sealed by himself in order that the instrument may be drawn up and money raised upon it for his benefit, if the instrument is afterwards duly drawn up and money obtained upon it from persons who have no reason to doubt the good faith of the transaction, it is presumed that the bond was drawn in accordance with the obligor's wishes and instructions. (https://www.paksearch.com/Government/CORPORATE/Contract/C90.htm) As to inchoate stamped negotiable instruments provision is made by the Negotiable Instruments Act, 1881, S. 20, which is as follows:-- "Where one person signs and delivers to another a paper stamped in accordance with the law relating to negotiable instruments then in force in British India, and either wholly blank or having written thereon an incomplete negotiable instrument, he thereby gives prima facie authority to the holder thereof to make or complete, as the case may be, upon it a negotiable instrument, for any amount specified therein and not exceeding the amount conveyed by the stamp. The person so signing shall be liable upon such instrument, in the capacity in which he signed the same, to any holder in due course for such amount; provided that no person other than a holder in due course shall recover from the person delivering the instrument anything in excess of the amount intended by him to be paid thereunder.

Parda-nishin cases.---It might be possible to refer to this head some of the cases in which gifts or other acts, practically amounting to acts of bounty, of parda-nishin women have been set aside. But it is certainly not necessary for this purpose to show that the nature of the act was not understood at all. The jurisdiction rests on a presumption of imperfect knowledge of the world and exposure to undue influence, making it the duty of a person taking a beneficial grant or contract from a parda-nishin woman to show that the deed was explained to her and understood by her, so that the ordinary burden of proof is reversed. These cases accordingly belong to the head of undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/C91.htm)

Error as to the person of the other party.---There can be no real formation of an agreement by proposal and acceptance unless a proposal is accepted by the persons, or one of a class or number of persons, to whom it is made. Similarly the acceptance must be directed to the proposer, or at least the acceptor must have so acted as to entitle the proposer to treat the acceptance as meant for him. The acceptance of an offer not directed to the acceptor may occur by accident, as where a man's successor in business receives an order addressed to his predcessor by a customer who does not know of the change, and executes it without explaining the facts. Here no contract is formed. But the buyer would be bound, as on a new contract, if after notice he treated the sale as subsisting. This kind of case is very unusual. Acceptance intended for a person other than the person actually making the offer might possibly happen by accident, but in the reported cases it has been the result of fraudulent personation. The proposer has obtained credit, in effect, by pretending to be some person of credit and substance known to the acceptor, or the agent of such a person. It may be a delicate question in a case of this kind, if tile transaction is between parties face to face.

As to the subject-matter of the agreement.---It is quite possible for the parties to a contract to be under a common mistake of this kind. If the mistake is not common, it may happen, in very exceptional cases, that by reason of an ambiguous name, or the like, each party is mistaken as to the other's intention, and neither is estopped from showing his own intention. (https://www.paksearch.com/Government/CORPORATE/Contract/C92.htm) Otherwise a contract (assuming the other conditions for the formation of a contract to be satisfied) can be affected by such a mistake, not common to both parties, only where it is induced by fraud or misrepresentation. We shall find (see below on S. 18) that willful acquiescence in the other party's mistake is equivalent to misrepresentation under certain circumstances. If the mistake is common, it can seldom, if ever, be said that there was no consent. A simpler and more correct explanation is to say that there was an agreement subject to a condition understood or implied in the nature of the agreement itself, though not expressed, and that condition has not been fulfilled. It may be that at the date of the agreement the condition is already incapable of fulfillment by reason of some fact unknown to the parties, as in the case of an agreement for the sale of a horse which in fact is dead, or a specific cargo which in fact is lost. In that case no operative obligation ever arises under the agreement. But this may be the case with any conditional contract. The interposition of a time of suspense, during which it cannot be known whether there will be an operative contract or not, can make no difference to the legal nature of the transaction. This particular class of cases, however, is specially dealt with by S. 20 of the Act.

In many cases falling under the foregoing heads, though not in all, the same result may be arrived at by observing that there is no consideration for the promise which it is sought to enforce.

Coercion wholly excluding consent.---Coercion might possibly be such as not only to prevent consent from being free (Ss. 14, 15), but to exclude any real or intelligent consent altogether.

S. 13 read with Specific Relief Act (I of 1877), .S. 3---Consent---Definition---Definition of "consent" or free-consent in Contract Act, 1872 applies to provisions of Specific Relief Act under residuary clause of S. 3 of Specific Relief Act. (https://www.paksearch.com/Government/CORPORATE/Contract/C93.htm)

Mutuality in contract---Contract of sale clearly showing names of two purchases jointly with third purchaser---Such two purchasers not signing contract but both executing power of attorney in favour of third joint purchaser who signed contract---Seller (appellant) accepting earnest money and also a further sum of maximum money---Held, it does not lie in seller’s mouth to say that contract lacked mutuality---Held furthere, mere absence of their signatures on contract does not render contract void and privity of contract existed between them and seller. (https://www.paksearch.com/Government/CORPORATE/Contract/C94.htm)

Illiterate and poor women---Not pardanashin’---Entitled to protection given to ‘pardanashin women. The rule of law, which is applicable to pardanashin ladies, is to protect the week and helpless and consequently such a rule should not be restricted to that class only, but should apply to the case of a poor woman who is equally ignorant and illiterate though not a pardanashin woman in the strict sense of the term. (https://www.paksearch.com/Government/CORPORATE/Contract/C95.htm)

14. "Free consent defined." Consent is said to be free when it is not caused by:---

(1) coercion, as defined in section 15, or
(2) undue influence, as defined in section 16, or
(3) fraud, as defined in section 17, or
(4) misrepresentation, as defined in section 18, or
(5) mistake subject to the provisions of sections 20, 21, and 22.

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

Unfree consent.--- Not only consent but free consent is declared by S. 10 to be necessary to the complete validity of a contract. The Act now proceeds to declare the meaning of this addition. Where there is no consent or no real and certain object of consent (cf. S. 29, below) there can be no contract at all. Where there is consent, but not free consent, there is generally a contract voidable at the option of the party whose consent was not free. This section declares in general the causes which may exclude freedom of consent, leaving them to be more fully explained by the later sections referred to in the text. In one respect the language is open to objection. It seems, when read together with that of other relevant sections, to assume that there are cases in which a contract is voidable on the ground of mistake. We are not aware of any such cases. We have seen that certain kinds of mistake may exclude consent altogether. In such cases no real agreement is ever formed, or there is no real object on which the parties are agreed, and the seeming agreement is wholly void. Otherwise mistake, if not induced by misrepresentation or fraud, is inoperative. If there be any specific exceptions to this rule, the Act gives no clue to them; in fact, we do not believe there are any. The specific provisions of the Act, however, cover the ground sufficiently to avoid any danger of serious error in practice.

The decision purported to be based on equitable grounds, but it seems on the new equity that Denning L.J. has often advocated (https://www.paksearch.com/Government/CORPORATE/Contract/C96.htm), rather than on established doctrine of the Chancery Courts.

Illiterate person signing document---Person obtaining signature must prove that he signed after document was properly explained to him. Held: the appellant is an illiterate person and the onus was on the respondent to establish beyond doubt that the signature of the appellant was obtained on that document after it was properly explained to him. (https://www.paksearch.com/Government/CORPORATE/Contract/C97.htm)

It is an established principle that in case of a document executed by an illiterate pardahanashin lady the court must satisfy itself upon the evidence that the document was executed by the pardahanashin lady with full understanding of what she was about to do: that she had full knowledge of the nature and effect of the transaction and, that she had independent disinterested advice in the matter. The burden, in such a case, to prove that the document executed was untainted by fraud misrepresentation and undue influence, lies on the person alleging the document to be genuine. (https://www.paksearch.com/Government/CORPORATE/Contract/C98.htm)

Minor's contract---No express plea raised in plaint as to agreements executed by father having been executed as guardians on behalf of minor sons---Agreements thus executed whether void. (https://www.paksearch.com/Government/CORPORATE/Contract/C99.htm)

Minor---Sale of minor's immovable property declared to be ab initio void---Consideration amount of such sale not found to have been spent for benefit of minor's estate---Held, alienee, in such circumstances, cannot be compensated by refund of consideration amount. (https://www.paksearch.com/Government/CORPORATE/Contract/D1.htm)

Plaintiff claiming on account of supply of goods---Such amount was payable on 60 days sight drafts drawn on Defendant No. 2---Defendant No. 1 contending that there was no privity of contract between him and the plaintiff and as such the claim against him was baseless---Held : such contention repelled---Suit---Held further: Decreed to the extent of cost of consignments. (https://www.paksearch.com/Government/CORPORATE/Contract/D2.htm)

Agreement by a person under a legal disability e.g. a minor or a person of unsound mind---Validity of---Held: Such act is void ab initio and is incapable of ratification or confirmation---Law forbids the enforcement of such a transaction even if the minor were to ratify it after attaining majority. (https://www.paksearch.com/Government/CORPORATE/Contract/D3.htm)

Purchase of property by guardian of minor on his behalf---Contract valid for benefit of minor. A distinction is to be drawn between contracts made by minors and those made by their guardians on their behalf. The important point for consideration in the latter class of cases should be as to whether the guardian is competent to make a contract on behalf of the minor or not. Therefore where the father of the minor had entered into a contract to purchase a piece of land on behalf of the minor, the contract is for the benefit of the minor and is valid and enforceable. (https://www.paksearch.com/Government/CORPORATE/Contract/D4.htm)

Right of maintenance---Minor cannot contract himself out of statutory right through his mother. Where the mother of the minors made a compromise with her husband so as to give up her right under S. 488, Cr.P.C. to receive maintenance of the minors. It was held that the right of a minor to receive maintenance under section 488, Cr.P.C., is inalienable. A minor cannot contract himself out of it either himself or through any other person including his mother for the short and sensible reason that the minor is incompetent to enter into a contract. (https://www.paksearch.com/Government/CORPORATE/Contract/D5.htm)

Firm, contract by---Department of firm entering into contract in a name different from name of firm---Department duly authorised to do such act---Contract valid. Where a department of a firm F & Co. operated under the name of S. & Sons and it entered into a contract in that name. Held: that a legal person was entitled to carry on business in different assumed names and since Messrs F & Co. was a legal person, the contract signed by its department Messrs S & Sons could not be held to be void. In law a contract can be signed in the trade name of a business by a person duly authorised on this behalf by the owners of such business. (https://www.paksearch.com/Government/CORPORATE/Contract/D6.htm)

Minors--Contracts by or on behalf of, are void. Minors cannot enter into a Contract nor a natural guardian can bind minors by making a contract on their behalf. (https://www.paksearch.com/Government/CORPORATE/Contract/D7.htm)

Contract jointly by majors and minors---Contract void for minors---May be enforced so far as majors are concerned. Where a contract has been made by four persons jointly, two minors and two adults, the invalidity of the contract with respect to two minors cannot have any contagious effect on the contract made by the other two majors. In such a case that part of the contract which relates to contract by minors is to be disregarded and the rest of the contract made by the adults should be taken to have been validly entered into by them and they are to be considered to be entitled to enforce the contract and claim specific performance of the same. (https://www.paksearch.com/Government/CORPORATE/Contract/D8.htm)

Contract on behalf of the minor by the father---Valid. Held: Since the contract was entered into by the father on behalf of and for the benefit of the minor it is a valid contract. (https://www.paksearch.com/Government/CORPORATE/Contract/D9.htm)

Lease in favour of minor---Minor can enforce---Ss. 10 and 11 cannot be used against the minor. Sections 10 and 11 of the Contract Act enacted for the benefit and protection of the minor cannot be made to operate against the minor. It is true that the contract in which the minor is a party cannot be enforced against the minor, but that does not mean that the major party who with his eyes wide open to the fact of the minority of the other side entered into a contract with him, and, after taking advantage of such a contract, can he allowed to go back from his part of the contract and repudiate it.

Therefore, in a lease by the minor in favour of the defendants and of which the leasehold property was given in possession of the defendants there is no obligation on the part of the minor to be enforced by the defendants, the lessees. Obligations are created by the least to be discharged by the lessees, and it can be enforced by the minor. (https://www.paksearch.com/Government/CORPORATE/Contract/D10.htm)

Minor executing sale deed---Sale nullity even when registered---Need not be set aside. Held: The deed was void and must be regarded a nullity in the eye of the law, and cannot be used for conferring any right or title on the purchaser.

Held further: There was no need for filing a suit for the cancellation or setting aside of the sale-deed in question, and in effect the suit of the plaintiff was not one for such cancellation or setting aside of the instrument in question. (https://www.paksearch.com/Government/CORPORATE/Contract/D11.htm)

Property---If can be transferred to a minor. Held: In the lower Court by mistake it was held that an infant being incapable of contracting under section 11 of the Con Act was also incapable of being the transferee under a sale deed of immovable property. (https://www.paksearch.com/Government/CORPORATE/Contract/D12.htm)

15. "Coercion" defined. "Coercion" is the committing, or threatening to commit, any act forbidden by the Pakistan Penal Code, or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.

Explanation.---It is immaterial whether the Pakistan Penal Code is or is not in force in the place where the coercion is employed.

A, on board an English ship on the high seas, causes B, to enter into an agreement by an act amounting to criminal intimidation under the Pakistan Penal Code.

A afterwards sues B for breach of contract at Karachi.

A has employed coercion, although his act is not an offence by the law of England, and although section 506 of the Pakistan Penal Code was not in force at the time when or place where the act was done.

Extent of "Coercion" under the Act.---The words of this section are far wider than anything in the English authorities ; it must be assumed that this was intended. In the original draft the word "coercion" is used but not defined. As the definition stands the coercion invalidating a contract need not proceed from a party to the contract, or be immediately directed against a person whom it is intended to cause to enter into the contract or any member of his household, or affect his property, or be specifically to his prejudice. In England the topic of "duress" at common law has been almost rendered absolete partly by the general improvement in manners and morals, and partly by the development of equitable jurisdiction under the head of Undue Influence. Detaining property is not duress. Two singular cases of marriage under coercion have been cited under S. 13 above. As to repayment under S. 72 of money paid under coercion (not necessarily within the present definition) see the commantry on the section.

Act forbidden by the Penal Code.---The words "act forbidden by the Pakistan Penal Code" make it necessary for the Court to decide in a Civil action, if that branch of the section is relied on, whether the alleged act of coercion is such as to amount to an offence. The mere fact that an agreement to refer matters in dispute to arbitration was entered into during the pendency and in fear of criminal proceedings is not sufficient to avoid the agreement on the ground of "coercion", though the agreement may be void as opposed to public policy within the meaning of S. 23. (https://www.paksearch.com/Government/CORPORATE/Contract/D13.htm) It must further be shown that the complainant or some other person on his behalf took advantage of the state of mind of the accused to apply pressure upon him to procure his consent. So far as we are aware, there is no case decided with express reference to the branch of the section now under consideration. The High Court of Allahabad refused to enforce a bond executed by a judgment debtor in favour of the decree holder to procure his release from custody in execution of a decree of a Court which had no jurisdiction to entertain the suit. The Court held that the bond was obtained when the judgment debtor was in duress, and it could be said with some amount of certainty that the decision proceeded on the ground (though no reasons are stated) that the alleged act of coercion amounted to an offence within the meaning of the Penal Code. (https://www.paksearch.com/Government/CORPORATE/Contract/D14.htm)

In a Madras case the question arose whether if a person held out a threat of committing suicide to his wife and son if they refused to execute a release in his favour, and the wife and son in consequence of that threat executed the release, the release could be said to have been obtained by coercion within the meaning of this section. Wallis C.J. and Seshagiri Aiyar J. answered the question in the affirmative, holding in effect that though a threat to commit suicide was not punishable under the Penal Code, it must be deemed to be forbidden, as an attempt to commit suicide was punishable under the Code (S. 309). Oldfield J. answered the question in the negative on the ground that the present section should be construed strictly, and that an act that was not punishable under the Penal Code could not be said to be forbideen by that code. (https://www.paksearch.com/Government/CORPORATE/Contract/D15.htm) This view seems to be correct. A penal code forbids only what it declares punishable. It might be well to amend the present section by adding after "forbidden" such words as "or an attempt to commit which is forbidden"; but that is the business of the legislature, not of the Courts. The truth is that the language of the Act had omitted to take account of a singular case.

Unlawful detaining of property.--- A refusal on the part of a mortgagee to convey the equity of redemption except on certain terms is not an unlawful detaining or threatening to detain any property within the meaning of this section. (https://www.paksearch.com/Government/CORPORATE/Contract/D16.htm)

Coercion--Execution of promissory note by defendant under threat from plaintiff about arrest of defendants husband who said to have committed an offence by issuing cheques which were dishonoured---Cannot be struck down on plea of coercion---Threat by plaintiff of defendant in such case would not amount to coercion within meaning of S. 15---Held; In present case Promissory Note was not signed under coercion but it was signed as a mutual settlement. (https://www.paksearch.com/Government/CORPORATE/Contract/D17.htm)

Original agreement valid---Subsequent agreement on the same subject illegal---Claim based on original agreement may be decreed. Where the original agreement is valid and enforceable, the fact that the petitioner has relied on a subsequent agreement in support of it and the latter is found illegal does not affect the validity of the claim based on the original agreement. That claim may be decreed. (https://www.paksearch.com/Government/CORPORATE/Contract/D18.htm)

Coercion---Mere fear of Criminal proceedings---Not sufficient to be called coercion---Contract not avoided. In order to prove coercion it must be shown that the creditor applied pressure upon the debtor to procure his consent. The mere "act that an agreement was entered into under fear of criminal proceedings is not sufficient to avoid the agreement on the ground of coercion. I am of the opinion that simply because a creditor threatens his debtor to involve him in a criminal case, it will not be coercion if there be some basis for such a prosecution. (https://www.paksearch.com/Government/CORPORATE/Contract/D19.htm)

Coercion---Concept---Plaintiff alleged to have been defrauded by. defendant's husband, informed the defendant that her husband was likely to be arrested and his name was likely to appear in local newspaper, as he had defrauded the plaintiff of a substantial sum of money---Defendant was not made to sign for tin amount which was in excess of what her husband owned to file plaintiff nor plaintiff threatened to commit any offence against her husband or herself or her property---Threat of criminal prosecution against husband of defendant, held, would not amount to coercion in circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/D20.htm)

Promissory note-execution of---Issue involving determination whether same executed by Defendant under coercion or of her own free will---Held: It was no coercion if plaintiff defrauded by Defendants husband had informed that her husband was likely to be arrested and his name in that context to appear in newspapers---Further it was not the case of the Defendant that she was made to sign for an amount in excess of what her husband owed to the plaintiff---Or that the plaintiff threatened to commit any offence against the Defendant's husband or herself or her property---Such a threat of criminal prosecution did not amount to coercion---Held further: Promissory note not signed under coercion. (https://www.paksearch.com/Government/CORPORATE/Contract/D21.htm)

12-19-2010, 01:41 AM
16. "Undue influence" defined. (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the ether.

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

(a) where he holds a real or apparent authority over the other, or where he stands in a fiduciary relation to the other; or

(b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.

(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person hi a position to dominate the will of the other.

Nothing in this sub-section shall affect the provisions of section 11 of the Evidence Act, 1872.

(a) A, having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B For a greater amount than the sum due in respect of the advance. A employs undue influence.

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

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

(d) A applies to a banker for a loan at a time when there is stringency. in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.

This section was substituted for the original S. 16 by the Indian Contract (Amendment) Act, 1899 (VI of 1899), S. 2.

The section before it was amended stood as follows:---

"Undue influence" is said to be employed in the following cases:---

"(1) When a person in whom confidence is reposed by another, or who holds.. a real or apparent authority over that other, makes use' of such' confidence or authority for the purpose of obtaining an advantage over. that other which, but for such confidence or authority, he could not have obtained;

"(2) When a person whose mind is enfeebled by old age, illness, or mental or bodily distress, is so treated as to make him consent to that to Which, but for such treatment, he would not have consented, although such treatment may not amount to coercion."

There were no illustrations appended to the old section. Illustrations (a) and (b) of the present section are elementary law. They were intended to be added to the section in its original form, but for some reason withdrawn before the Act was passed. Illustrations (c) and (d) are evidently intended to explain the application and the limits of para 3.

It will be sufficient for the present purpose to refer to a few of the leading authorities on the various points dealt with by the text of the Act. The first paragraph of the section lays down the principle in general terms; the second and third define the presumptions by which the Court is enabled to apply the principle. It is obvious that the same power which can "dominate the will" of a weaker party is often also in a position to suppress the evidence which would be required to prove more constraint in a specific instance. Modification of the ordinary rules of evidence is accordingly necessary to prevent a failure of justice in such cases. Where the special presumptions do not apply, proof of undue influence on the particular occasion remains admissible, though strong evidence is required to show that, in the absence of any of the relations which are generally accompanied by more or' less control on one side and submission on the other, the consent of a contracting party was not free. In the case of a pure voluntary gift (though there is no general presumption against the validity of gifts) the proof is less difficult; but this is not within our subject.

Sub-S. (1): Undue influence generally.---The first paragraph gives the elements of undue influence; a dominant position and the use of it to obtain an unfair advantage. The words "unfair advantage" must be taken with the context. They do not limit the jurisdiction to cases where the transaction would be obviously unfair as between persons dealing on an equal footing.

It is an essential condition for the application of the section that one of the parties should be in a position to dominate the will of the other. (https://www.paksearch.com/Government/CORPORATE/Contract/D22.htm) No further question arises until this is proved. A plea of undue influence can only be raised by a party to the contract and not by a third party. (https://www.paksearch.com/Government/CORPORATE/Contract/D23.htm)

Subs-S. (2): Different forms of influence.---The second paragraph of the present section makes a division of the subject-matter on a different principle, according to the origin of the relation of dependence, continuing or transitory, which makes undue influence possible. Such a relation may arise from a special authority or confidence committed to the donee, or from the feebleness in body or mind of the donor. However, it is impossible to find plain and clear-cut categories for transactions which are often obscure and complicated, and sometimes purposely made so. Practically the most important thing to bear in mind is that persons in authority, or holding confidential employments such as that of spiritual, medical, or legal adviser, are called on the act with good faith and more than good faith in the matter of accepting any benefit (beyond ordinary professional remuneration for professional work done) from those who are under their authority or guidance. In fact, their honourable and prudent course is to insist on the other party taking independent advice. Following these principles, the High Court of Allahabad set aside a gift of the whole of his property by a Hindu well advanced in years to his guru, or spiritual adviser, the only reason for the gift as disclosed by the deed being the donor’s desire to secure benefits to his soul in the next words. (https://www.paksearch.com/Government/CORPORATE/Contract/D24.htm) Similarly, where a cestui que trust had no independent advice, it was held that a gift by him to the trustee of certain shares forming part of the trust funds was void, though in the same case a gift of shares which did not form part of the trust funds was upheld. (https://www.paksearch.com/Government/CORPORATE/Contract/D25.htm) The case of Wajid Khan (https://www.paksearch.com/Government/CORPORATE/Contract/D26.htm) in which the Privy Council set aside a deed of gift executed by an old illiterate Muhammadan lady in favour of her confidential managing agent, comes under this head. And so does the case in which the Calcutta High Court refused to enforce an agreement executed by a poor woman in favour of her mookhtear by which she bound herself to give him, by way of remuneration for his services, one half of the property which she might recover by his assistance. (https://www.paksearch.com/Government/CORPORATE/Contract/D27.htm) Where the daughters paramour stayed in the same house with her and her father, and the father gifted away the whole of his property to the paramour, it was held that there was a presumption that the gift was obtained by undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D28.htm) The same principles apply to agreements for remuneration between an attorney and a client, between a managing clerk in an attorney's office and a client, and between an elder sister's husband who was the manager of the estate and two younger sisters. A parent stands in a fiduciary relation towards his child, and any transaction between them by which any benefit is procured by the parent to himself or to a third party at the expense of the child will be viewed with jealousy by courts of equity, and the burden will be on the parent or third party claiming the benefit of showing that the child in entering into the transaction had independent advice, that he thoroughly understood the nature of the transaction, and that he was removed from all undue influence when the gift was made. (https://www.paksearch.com/Government/CORPORATE/Contract/D29.htm) But the presumption of undue influence does not apply to a gift by a mother to her daughter. If such a gift is sought to be set aside on the ground of undue influence, the burden lies upon those who seek to avoid it to establish domination on the part of the daughter and subjection of the mother, nor does the presumption of undue influence arise between husband and wife. (https://www.paksearch.com/Government/CORPORATE/Contract/D30.htm) It has also been held that the relation of master and servant is not by itself enough to show a dominant position, nor is the circumstance that the defendant is daughter-in-law of a ruler, and the plaintiff a subject. (https://www.paksearch.com/Government/CORPORATE/Contract/D31.htm)

It is not the only possible proof of a donor's competence and understanding; on the other hand, advice relied on to support the transaction must not only be independent, but "must be given with knowledge of all relevant circumstances and must be such as a competent and honest adviser would give if acting solely in the interests of the donor." (https://www.paksearch.com/Government/CORPORATE/Contract/D32.htm)

Mental distress.--- "A state of fear by itself does not constitute undue influence. Assuming a state of fear amounting to mental distress which enfeebles the mind, there must further be action of some kind, the employment of pressure or influence by or on behalf of the other party to the agreement." The mere fact, therefore, that a submission was executed by the defendant during the pendency and under fear of a criminal prosecution instituted against him by the plaintiff will not avoid the transaction on the ground of "undue influence."

An aged father executed deeds of gift and a wakfnama at a time when he was in a weak state of mind as the result of a long drawn out illness. These transactions were brought at the instance of his son and had the effect of depriving the other members of the family of their just share of the inheritance. As it was proved that the son was in a position to dominate the will of the father and that he used that position to his own advantage, the deeds of gift and the wakfnama were set aside. (https://www.paksearch.com/Government/CORPORATE/Contract/D33.htm)

Similarly where criminal proceedings were threatened against a mookadam for misappropriation of his master's moneys, and a bond was passed by an ignorant Hindu widow who had brought him up as her son to save him from the threatened prosecution, it was held that the agreement was not binding upon the widow, she having had no independent advice. (https://www.paksearch.com/Government/CORPORATE/Contract/D34.htm)

Proof of undue influence.---In dealing with cases of undue influence there are four important questions which the Court should consider, namely, (1) whether the transaction is a righteous transaction, that is, whether it is a thing which a right-minded person might be expected to do; (2) whether it was improvident, that is to say, whether it shows so much improvidence as to suggest the idea that the donor was not master of himself and not in a state of mind to weigh what he was doing; (3)whether it was a matter requiring a legal adviser; and (4) whether the intention of making the gift originated with the donor. (https://www.paksearch.com/Government/CORPORATE/Contract/D35.htm)

Transactions with Parda-nishin woman.---From a time before, though not long before, the passing of the Contract Act, some of the High Courts, with a certain amount of support from the Privy Council, have treated parda-nishin women (sometimes in terms only Hindu woman, but in fact those concerned are not always Hindus) as a class of persons specially exposed to undue influence, and have gone near to laying it down as a rule of law that every one dealing with a parda-nishin woman is bound to show affirmatively that she understood the nature of the transaction, and that the terms were fair. The rule was stated by the late Sir. W. Rattingan, in a paper where he forcibly criticised this policy, to have been first announced in 1867 in a Calcutta case not regularly reported. "It does not necessarily follow," Sir W. Rattingan observed, "that a native woman simply because she sits behind the parda, is to be placed in the same Category as the "weak, ignorant, and infirm persons' whom the Court of Chancery, under a proper interpretation of its approved practice, is accustomed to protect. On the contrary, it is common experience to find in India parda ladies who are highly intelligent, strong minded, and who possess excellent business capacity, and contrive to manage large estates with great success. To adopt a sweeping generalisation, and to hold that every parda-nishin lady who enters into any commercial transaction, or who makes a disposition of her property, is presumably the victim of 'undue influence,' is to make an assumption which is contrary to actual facts, and to cause the law to be abused for the purpose of avoiding bona fide engagements."

In the earliest Privy Council decision on the subject, where a Muhammadan lady sued to recover from her husband the value of Company's paper of a considerable amount alleged to have been endorsed and handed over to him to receive interest thereon, and the defence was that he had purchased the paper from his wife, it was held by their Lordships that, though the wife failed to prove affirmatively the precise case set up by her in the plaint, the burden of proof was upon the husband to show, the plaintiff being a parda-nishin that the sale was a bona fide one for value, and that upon the evidence he had failed to satisfy the burden. (https://www.paksearch.com/Government/CORPORATE/Contract/D36.htm) A few years later it was declared by the same tribunal that, as regards deeds taken from parda women, the Courts have always been careful to see "that the party executing them has been a free agent, and duly informed of what she was about". It is not sufficient to show that a document executed by a parda-nishin woman was read out to her; it must further be shown that it was explained to her or that she understood its conditions and effect, and the explanation must include all material points as well as the general nature of the transaction. The reason is that the ordinary presumption that a person understands the document to which he has affixed his name does not apply in the case of a parda-nishin woman. (https://www.paksearch.com/Government/CORPORATE/Contract/D37.htm)

The law as to the burden of proof is summarised in a decision of the Privy Council. (https://www.paksearch.com/Government/CORPORATE/Contract/D38.htm) "In the first place, the lady was a parda-nishin lady, and the law throws around her a special cloak of protection. it demands that the burden of proof shall in such a case rest, not with those who attack, but with those who found upon the deed, and the proof must go so far as to shew affirmatively and conclusively that the deed was not only executed by, but was explained to, and was really understood by the grantor. In such cases it must also, of course, be established that the deed was not signed under duress, but arose from the free and independent will of the grantor. The law as just stated is too well settled to be doubted or upset."

More lately, on an attempt to repudiate a parda-nishin woman's compromise of a litigated family dispute, Lord Buckmaster said: (https://www.paksearch.com/Government/CORPORATE/Contract/D39.htm) "lt is not necessary---Indeed, it is undesirable---to insist in such cases upon a test which depends upon a clear understanding of each detail of a matter which may be greatly involved in legal technicalities. It is sufficient that the general result of the compromise should be understood, and that people disinterested and competent to give advice should, with a fair understanding of the whole matter, advice the lady that the deed should be executed."

Some Indian decisions suggest that a deed of gift by a parda-nishin woman is invalid in the absence of proof that she had independent advice. But in a case the Privy Council held that there is no rule of law of the absolute kind above indicated. "The possession of independent advice, or the absence of it, is a fact to be taken into consideration and well weighed on a review of the whole circumstances relevant to the issue of whether the grantor thoroughly comprehended, and deliberately and of her own free will carried out the transaction. If she did, the issue is solved and the transaction is upheld, but if upon a review of the facts which include the nature of the thing done and the training and habit of mind of the grantor, as well as the approximate circumstances affecting the execution---if the conclusion is reached that the obtaining of independent advice would not really have made any difference in the result then the deed ought to stand. In short their view is that if independent outside advice, which is an essentially different thing from independent outside control, had been obtained, the lady would have acted just as she did. Much as their lordships support and approve of the protection given by law to a parda-nishin lady, they cannot transmute such a legal protection into a legal disability. She might, especially if the outside adviser had been a lawyer, have altered the shape or form of the transaction, but in substance and result she would have carried out the same purpose and will as are expressed by the deed under challenge.

It should be noted that "the undue influence which may affect a parda-nishin lady's understanding of a document may proceed from a third party." It was so held by Jenkins C.J in a Case where a mortgage of her property by a parda-nishin woman to a creditor of her husband was set aside, the undue influence having proceeded from the husband. (https://www.paksearch.com/Government/CORPORATE/Contract/D40.htm) It appears that most, if not all, of the decisions could have been arrived at without the aid of any general presumption, on such grounds as that the act was done under the influence of marital control, or actual fraud or misrepresentation, or even in total ignorance of its nature and effect. The only thing in English law that seems analogous to the treatment of a parda-nishin woman’s dealings as presumably invalid is the treatment of dealing with "expectant heirs" by Courts of Equity, where fraud is said to be "presumed from the circumstances and condition of the parties contracting." But this equitable doctrine is peculiar, and depends, in part at any rate, on reasons not existing in India.

A number of other cases relating to parda-nishin women are collected in foot-note. (https://www.paksearch.com/Government/CORPORATE/Contract/D40a.htm) They do not lay down any rules differing in principle from those discussed above, but illustrate various aspects of the rules. With the gradual relaxation of the custom of parda and the spread of education, the cases on the subject will become of less and less importance.

Who is a parda-nishin.---The expression "parda-nishin" connotes complete seclusion. It is not enough to entitle a woman to the special care with which the Courts regard the deposition of a parda-nishin woman that she lives in some degree of seclusion. (https://www.paksearch.com/Government/CORPORATE/Contract/D41.htm) Thus a woman who goes to Court and gives evidence, who fixes rents with tenants and collects rents, who communicates, when necessary, in matters of business, with men other than members of her own family, could not be regarded as a parda-nishin woman. (https://www.paksearch.com/Government/CORPORATE/Contract/D42.htm) In a Privy, Council case, it was said: "It is abundantly clear that Mrs. Hodges was not a parda-nishin. The. term quasi-parda-nishin seems to have been invented for this occasion. Their lordships take it to mean a woman who, not being of the parda-nishin class, is yet so close. to them in kinship and habits, and so secluded from ordinary social intercourse, that a like amount of incapacity for business must be ascribed to her, and the same amount of protection which the law gives to parda-nishin must be extended to her. The contention is a novel one, and their lordships are not favourably impressed by it. As to a certain well-known and easily ascertained class of women, well-known rules of law are established, with the wisdom of which we are not now concerned; outside that class it must depend in each case on the character and position of the individual woman whether those who deal with her are or are not bound to take special precautions that her action shall be intelligent and voluntary, and to prove that it was so in case of dispute." (https://www.paksearch.com/Government/CORPORATE/Contract/D43.htm)

Sub.-S. (3): Rule of evidence.--- The third paragraph of the present section does not lay down any rule of law, but throws the burden of proving freedom of consent on a party who, being in dominant position, makes a bargain so much to his own advantage that, in the language of some of the English authorities, it "shocks the conscience." Money-lending cases are those chiefly contemplated [see illustration (c)]. It must not be supposed, however, that there may not be other forms of unconscionable bargain within the mischief and the remedy of this enactment. (https://www.paksearch.com/Government/CORPORATE/Contract/D44.htm)

"Unconscionable bargains."--- Illustration (c) contemplates the case of a person already indebted to a money-lender contracting a fresh loan with him on terms on the face of them unconscionable: In such a case a presumption is raised that the borrower's consent was not free. The presumption is rebuttable, but the burden of proof is on the party who has sought to make an exorbitant profit of the other's distress. The question is not of fraud, but of the unconscientious use of superior power. Inadequacy of consideration, though it will not of itself avoid a contract (S. 25, expl. 2, below), has great weight in this class of cases as evidence that the contract was not freely made. "Inadequacy of consideration in conjunction with the circumstances of indebtedness and ignorance were facts from which it would have been as permissible before the amendment of (this section) to infer the use of undue influence as it would be since that amendment". Relief in cass of unconscionable bargains is an old head of English equity. It was formerly associated in a special manner with sales of reversionary interests, which the Court was eager to restrain; and for some time it was the doctrin of the Court that a sale of any reversionary interest, if proved to have been made, for only a little, under the value, must be set aside without further inquiry. This rule was at last found so inconvenient that it was abolished by statute. But the general principles of equity in dealing with what are, called "catching bargains" remain, and the third clause of the, section now before us is apparently intended to embody them. In fact, the Indian High Courts had acted on these principles, both before and since the passing of the Contract Act, without any express authority of written law.

After the amendment of the present section, the High Court of Allahabad disallowed compound interest payable at 2 per cent. per mensem with monthly rests in the case of a bond executed by a spendthrift and a drunkard eighteen years old. (https://www.paksearch.com/Government/CORPORATE/Contract/D45.htm) And where a person twenty-eight years old, the son of a wealthy father, but of profligate habits and greatly in need of money, his father having refused to provide him with any money, executed a bond to secure a sum of Rs. 500 with interest at the rate of Rs. 37-8-0 per cent. per annum with six monthly rests, with a stipulation that the borrower should not be empowered to pay the money within three years, and if he did pay within three years, he should nevertheless be obliged to pay three years' interest at the rate above mentioned, the same Court held that the bargain was unconscionable, and gave the lender a decree of Rs. 500 with simple interest at the rate of 24 per cent per annum. (https://www.paksearch.com/Government/CORPORATE/Contract/D46.htm) Where a poor Hindu widow borrowed Rs. 1,500 from a money-lender at 100 per cent. per annum for the purpose of enabling her to establish her right to maintenance, the High Court of Madras allowed the lender interest at 24 per cent. (https://www.paksearch.com/Government/CORPORATE/Contract/D47.htm)

Again, where a person entirely under the influence of his manager, who managed his litigation and household expenses, executed a perpetual lease in favour of the manager for a wholly inadequate consideration and subject to terms onerous to the lessor, the transaction was set aside. (https://www.paksearch.com/Government/CORPORATE/Contract/D48.htm) But the question whether a transaction should be set aside as being inequitable depends upon the circumstances existing at the time of the transaction, and not on subsequent events. (https://www.paksearch.com/Government/CORPORATE/Contract/D49.htm)

Similarly, though the agreement be by a mortagagor for sale of his equity of redemption to the mortgagee upon onerous terms, the Court will not therefore refuse specific performance if the bargain is not unconscionable and there is no evidence to show that the mortgagee took an improper advantage of his position or of the mortgagor's difficult. (https://www.paksearch.com/Government/CORPORATE/Contract/D50.htm)

Drastic legislation in most parts of India with regard to money-lending transactions has to a great extent supplanted the provisions of the Contract Act for the protection of debtors. It is not possible in this book to enlarge on the details of this legislation and reference must be made to special works on the subject.

Lapse of time and limitation.---Delay and acquiescence do not bar a party's right to equitable relief on the ground of undue influence, unless he knew that he had the right, or, being a free agent at the time, deliberately determined not to inquire what his rights were or to act upon them. (https://www.paksearch.com/Government/CORPORATE/Contract/D51.htm) Lapse of time is not a bar in itself to such a relief. There must be conduct amounting to confirmation of ratification of the transaction.

Consent of a party to transaction induced by suggestion of a fraudulent fact---Person so deceived having means of discovering truth with ordinary diligence---Effect---Where consent of a party was induced by the suggestion of a fact which was not true, and was fraudulent, exchange deed so effected, held, would nevertheless be not voidable where person deceived had means of discovering truth with ordinary diligence. (https://www.paksearch.com/Government/CORPORATE/Contract/D52.htm)

Question about exercise of undue influence---Pre-eminently a question of fact--Concurrent finding on question of soundness of mind of vendor and absence of undue influence over him---Not open to challenge, when these findings arc fully sustainable on record---Constitution of Pakistan, 1973, Art. 188. (https://www.paksearch.com/Government/CORPORATE/Contract/D53.htm)

Transfer of Property Act (IV of 1882), S. 54---Qanun-e-Shahadat Order (X of 1984), Arts. 70 & 71---Sale transaction---Undue influence---Proof---Oral depositions of witnesses produced by plaintiff to prove mental incapacity of vendor and undue influence of vendees on such vendor in respect of disputed sale transaction, being not based on personal observations or knowledge of witnesses, held, could not be relied upon---Important facts like exercise of undue influence on vendor by vendees and mental incapacity of vendor which could affect sale transactions, could, hardly be established by such unreliable oral evidence. (https://www.paksearch.com/Government/CORPORATE/Contract/D54.htm)

Pardanashin' woman---Nature of protection given to---Party taking advantage under deed must prove that ‘pardanashin’ woman acted of her own free will. The doctrine of protection of pardanashin woman involves the view that mere execution by such a person, although unaccompanied by duress, protest or obvious signs of misunderstanding or want of comprehension, is in itself no real proof of a true understanding mind in the executant. The onus is always on the person who takes advantage of a transaction to show that the transaction was actually conceived and put into practice by the disposer herself. The party taking advantage must show to the Court that the deed was explained to and understood by the executant and she adopted it with full knowledge and comprehension. The fact whether independent advice was available to a pardanashin lady at the time when she entered into a transaction can be taken into consideration in order to determine whether she thoroughly comprehended and deliberately of her own free will, carried out the transaction. If it is found that the document was conceived and executed by her free will, it shall be upheld notwithstanding the fact that the executant is a pardanashin lady. The legal protection given to a pardanashin or an illiterate woman, cannot be transmuted into a legal disability. The protection that the Courts have built up for the pardanashin and illiterate women, would apply in all cases whether the lady is plaintiff or the defendant. (https://www.paksearch.com/Government/CORPORATE/Contract/D55_56.htm)

Suit to set aside contract on ground of fraud---Suit filed long time after cause of action arose---Relief refused. Where plaintiff alleged that she had been induced to enter into a contract by fraudulent representation of the defendant; but she brought a suit to set aside the contract on the last day of limitation with he result that in the meantime the defendant had greatly changed his position. Held: In such circumstances even if the grievance of the plaintiff is found to be genuine she cannot be given any relief by the Court. (https://www.paksearch.com/Government/CORPORATE/Contract/D57.htm)

Undue influence----Question of law---Existence of influence or authority on donor established---No existence of undue influence may be proved by donee. The question whether on proved fads undue influence can be held to be established may in a particular case be one of law. Once the existence of authority or influence by the person who has taken advantage is established, it is for such person to prove that the act of gift was the result of the free exercise of the will of the donor. (https://www.paksearch.com/Government/CORPORATE/Contract/D58.htm)

Woman literate and having business aptitude---No special latitude may be given to plea of undue influence. Where a woman claimed special protection of the Court on the ground that she had been unduly influenced into entering into a contract. Held: This section has no application to cases in which literate women are found to have full business aptitude and capacity to look after their interest. (https://www.paksearch.com/Government/CORPORATE/Contract/D59.htm)

Defendant alleging execution under undue influence---Onus of proof of allegations---Mere advantageous position not sufficient to prove undue influence. The onus of providing that plaintiff was in a position to dominate the will of the defendant is entirely on the defendant. Defendant is further called upon to prove that plaintiff has used that position to obtain in unfair advantage for himself. Merely showing that the plaintiff was in a more advantageous position as compared to that of the defendant so as to be able to drive a benefit by dominating the will of defendant is not enough. (https://www.paksearch.com/Government/CORPORATE/Contract/D60.htm)

Mortgage bond--Allegation that consideration for bond was less than stated---Court would not go into the matter. Unless defendant is able to prove that the contract, namely the mortgage bond, is hit by the provisions of section 16 the Court will enforce the terms of the contract without any further investigation as to the basis therefore it is not the case of the defendant that there was no consideration for the bond. His contention is that the debt consists of a considerably lower figure. (https://www.paksearch.com/Government/CORPORATE/Contract/D61.htm)

Undue influence---What is----Facts to be proved to avoid contract for undue influence. To prove that a contract was entered into under undue influence it must be established (a) that the relations subsisting between the parties should be such that one of them is in a position to dominate the will of the other; (b) that the dominant party obtains an unfair advantage over the other; and (c) that the dominant party uses his dominant position to obtain that unfair advantage. Raising merely an atmosphere of suspicion is not sufficient in a case of undue influence but there must be clear and definite evidence of the case propounded. It must be established that but for the undue influence which was practised upon him, he would not have entered into the transaction. In order that a contract may be had on this ground it is further to be established that the contract was unfair and unconscionable. (https://www.paksearch.com/Government/CORPORATE/Contract/D62.htm)

Undue influence---Contract induced by person in a position to dominate will of another---Burden of proof. Sub-section (3) of section 16 lays down that where a person who is in a position to dominate the will of another enters into a contract with him, and the transaction appears on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. (https://www.paksearch.com/Government/CORPORATE/Contract/D63.htm)

Coercion---Mental capacity of person affected temporarily by action of another---Other person may be guilty of coercion. If a person's mental capacity is temporarily affected by reason of mental or bodily distress by the action of another person, that person would be deemed to be in a position to dominate his will, and as such the latter may be said to have coerced the other into the doing of certain acts at that time. (https://www.paksearch.com/Government/CORPORATE/Contract/D64.htm)

Execution of receipt admitted but receipt of consideration denied---Allegation of undue influence---Burden of proof is on person denying consideration or alleging undue influence. Where the defendant admits that he signed the receipt, the presumption would be that he had received the consideration. It was for the defendant to prove that he had not received the consideration mentioned in the receipt or that he had executed the receipt under undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D65.htm)

Party denying execution of document and alleging her signatures were obtained on blank paper---Onus of proof that signatures were properly obtained lies on the other party. Ordinarily in cases where a document is admitted to have been signed by a party and the payment of consideration is denied, the onus to prove that the consideration was not paid or the document was obtained by misrepresentation or fraud is on the party who admits his signature but contends that his signature was taken upon a blank paper. Such statement is taken as a denial and not execution of the document. In such cases the onus to prove the execution of the document lies heavily on the respondent. (https://www.paksearch.com/Government/CORPORATE/Contract/D66.htm)

Spiritual influence----Person impressing another by his deeply spiritual life---Impression not sufficient to be considered undue influence. It was suggested that the plaintiff had by his religious profession created a deep impression of his spirituality on the defendant so that the latter was not in a position to resist whatever terms the plaintiff proposed, on which he would serve the defendant.

Held: There is no force in this contention. It has been shown with reference to the letters of the defendant himself that he was extremely keen to get the plaintiff in his service and that he was not doing so under the spell of his immediate presence, The fact that the plaintiff was a religious man may well have been one of the considerations for the defendant to consider him desirable for the nature of the work which he was going to entrust to him. He was on the look out of a man who should be honest and possessed integrity so that he could trust him implicity and to that end the religious attitude of the plaintiff may have counted in his favour but that does not constitute undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D67.htm)

Temporary Government employee---Made to agree to termination of his service on one month's notice---Agreement is under undue influence and void. Where a temporary employee was made to sign a declaration by which he agreed that his services may be terminated by one month notice.

Held: The Government (appellant) had a real authority over the respondent and by virtue of sub-section (2) of section 16 of the Contract Act, the appellant was deemed to be in a position to dominate the will of others. If therefore, the appellant enters into a contract with the respondent and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. The declaration signed by the respondent is in the nature of a contract. By this contract, the respondent subjected himself to a liability. There can be no denying the fact that the tenure and security of service is a very important aspect for a public servant. He would not like to impair it unless under compelling circumstances. The position of the respondent under the Government of India Act, 1935, before signing of the declaration was that he could not be removed from service unless in due compliance with the provisions of section 240 (3). After the declaration, his services would be terminated by one month's notice. It was, undoubtedly, a substantial change in the conditions or tenure of his service. Since the appellant was in a position to dominate the will of the respondent, the presumption was against them and it was for them to have proved that it was not induced by undue influence. The appellant, however, have failed to do so. Therefore the declaration was void and of no legal effect. (https://www.paksearch.com/Government/CORPORATE/Contract/D68.htm)

Onus---Undue influence---How proved and by whom. In order to determine the question of onus in a case attracted by section 16 (b) the first thing to be considered is the relationship between the parties that is to say whether one party was in a position to dominate over the other and then it must be proved that position was used to obtain an unfair advantage and even though the transaction may be unconscionable relief cannot be granted until the initial fact of the position to dominate the will is established. If such a position is proved and the transaction also appears to be unconscionable, the burden of proof that the contract was not induced by undue influence lies on the person in a position to dominate the will of the other.

When there is evidence of overpowering influence and the transaction is immoderate and irrational, proof of undue influence is complete. It is not necessary that such overpowering influence should be by threat or by committing any act forbidden by law or by unlawful detention etc. If a person has some influence over the other and by means of that influence reduces the will of the other to his subjection, whatever may be the nature of the influence spiritual moral, social or any other influence, then it is such coercion as is sufficient to constitute undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D69.htm)

Relationship of tile parties---If sufficient to prove undue influence---How proved. "Undue influence is not established by proof of the relations of the parties having been such that the one naturally relied upon the other for advice and the other was in a position to dominate the will of the first in giving it."

Up to the point "influence" alone has been made out. Such influence may be used wisely, judicially and helpfully. But whether by the law of England more than mere influence must be proved, so as to render influence in the language of the law undue. It must be established that the person in a position of domination has used that position to obtain unfair advantage for himself and so to cause injury to the person relying upon his authority or aid. And where the relation of influence as above set forth has been established, and the second thing is also made clear viz. that the bargain is with the influencer and in itself unconscionable then the person in a position to use his dominating power has the burden thrown upon him, and it is a heavy burden of establishing affirmatively that no domination was practised so as to bring about the transaction but grantor of the deed was scrupulously advised in the independence of a free agent. (https://www.paksearch.com/Government/CORPORATE/Contract/D70.htm)

Spiritual influence---Person impressing another by his deeply spiritual life---Impression not sufficient to be considered undue influence. It was suggested that the plaintiff had by his religious profession created a deep impression of, his spirituality on the defendant so that the latter was not in, a position to resist whatever terms the plaintiff proposed, on which he would serve the defendant.

Held: I do not find any force in this contention. It has been shown above with reference to the letters of the defendant himself that he was extremely keen to get the plaintiff in his service and that he was not doing so under the spell of his immediate presence. The fact that the plaintiff was a religious man may well have been one of the considerations for the defendant to consider him desirable for the nature of the work which he was going to entrust to him. He was on the look out of a man who should be honest and possessed integrity so that he could trust him implicity and to that end the religious attitude of the plaintiff may have counted in his favour but that does not constitute undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D71.htm)

Undue influence---How proved---Mere relationship or position from which One's will can be dominated not sufficient---Urgent need of party, a criterion. For avoiding a contract on the ground of undue influence existence of a particular relationship is not necessary. The only difference in the kinds of cases is, that where no such relationship exists the burden of proving the exercise of undue influence rests on the party who seeks to avoid the contract whereas in the case of existence of such relationship it is for the party who is in a position to influence the other to show that the transaction was fair.

After having determined as to whether one party was in a position to dominate the will of another, there still remains another question and that is whether an unfair advantage was taken. That again depends upon the circumstances of each case and the criterion would be whether the Court considering all the attendant circumstances regards the transaction as unconscionable.

Urgent need and helplessness, however have both of them reference to the effect of the failure of the borrower to secure the money and obviously the difference between the two is only a matter of degree. How is this degree of the need of the borrower to be determined? It is not possible to lay down any hard and fast rule. Each case must be decided on its own facts. (https://www.paksearch.com/Government/CORPORATE/Contract/D72.htm)

Undue influence---What is. In order to determine the question of onus in a case attracted by section 16 (b) the first thing to be considered is the relationship between the parties, that is to say, whether one party is in a position to dominate over the other and then it must be proved that position was used to obtain an unfair advantage and even though the transaction may be unconscionable, relief cannot be granted until the initial fact of the position to dominate the will is established, If such position is proved and the transaction also appears to be unconscionable, the burden of proof that the contract was not induced by undue influence lies on the person in position to dominate the will of the other

When there is evidence of the overpowering influence and the transaction is immoderate and irrational, proof of undue influence is complete. It is not necessary that such overpowering influence should be by threat or by committing any act forbidden by law or by unlawful detention, etc. If a person has some influence over an other and by means of that influence reduces the will of the other to his subjection whatever may be the nature of the influence, spiritual, moral, social or any other influence, then it is such coercion as is sufficient to constitute undue influence. (https://www.paksearch.com/Government/CORPORATE/Contract/D73.htm)

Agreement to sell old grant land---Contended that agreement was vitiated on account of old age and mental infirmity of deceased vendor---High Court going through entire evidence on record but finding that none of ingredients of S. 16 had been on record---Plea of undue influence not sustained. (https://www.paksearch.com/Government/CORPORATE/Contract/D74.htm)

S. 16 (2) read with Constitution of Pakistan (1973), Art. 185 (3)---Contract---Undue influence---Both Courts below recording concurrent findings of fact on question of soundness of mind of vendor and absence of undue influence over him and such finding sustainable on record---Question being pre-eminently one of fact, interference by Supreme Court, held, not justified. (https://www.paksearch.com/Government/CORPORATE/Contract/D75.htm)

Undue influence---Unconscionable transaction---Person being in a position to dominate will of other---Burden of proof---Appellant admittedly murid of respondent who was his murshid---Appellant alleging that respondent got power of attorney executed by him in his favour by fraud and misrepresentation saying that same was for management of his land---Respondent selling suit land under power of attorney---Power of attorney on face of it unconscionable---Burden, held, was on respondent to prove that general power-of-attorney was got executed by him without exerting any undue influence of fraud upon appellant---Both Courts below, held, committed material irregularity and illegality in not adverting to relationship of murshid and murid and placing burden upon appellant to prove due execution of power-of-attorney. (https://www.paksearch.com/Government/CORPORATE/Contract/D76.htm)

Transaction through documents with illiterate lady---Signature of such lady on document---Proof---Principle of protective cloak available to Pardanashin lady---Application---No evidence on record present to show that documents which were in English had been translated for consumption of said lady or they were explained to her and that she put signature after fully understanding contents of such documents. Merely because ultimately family member of such lady was to be benefited by document and thus lady had signed, held, could not be the reason by itself in absence of any other tangible evidence to conclude that for her relative's interests---Such must have not only signed documents but also fully understood their contents---Lady being illiterate, was therefore, certainly entitled to benefit of principle of protective cloak available to Pardanashin lady.

17. "Fraud" defined. "Fruad" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract :---

(1) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true;
(2) the active concealment of a fact by one having knowledge or belief of the fact;
(3) a promise made without any intention of performing it.;
(4) any other act fitted to deceive;
(5) any such act or omission as the law specially declares to be fraudulent.

Explanation .---Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself equivalent to speech.

(a) A sells, by auction; to B, a horse which A knows to be unsound, A says nothing to B about the horse's unsoundness. This is not fraud in A

(b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound.

(c) B says to A---"If you do not deny it, I shall assume that the horse is sound. A says nothing. Here A's silence is equivalent to speech.

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

Fraud in general.---Fraud is committed wherever one man causes another to act on a false belief by a representation which he does not himself believe to be true. He need not have definite knowledge or belief that it is not true. When fraud products damage it is generally a wrong entitling the person defrauded to bring a civil action. Under the Contract Act we are concerned with the effects of fraud only so far as consent to a contract is procured by it. We have already pointed out that the result of fraudulent practice may sometimes be a complete misunderstanding on the part of the person deceived as to the nature of the transaction undertaken, or the person of the other party. Such cases are exceptional. Where they occur, there is not a contract voidable on the ground of fraud, but the apparent agreement is wholly void for want of consent, and the party misled may treat it as a nullity even as against innocent third persons. But the fraudulent party is of Course estopped from denying that there is a contract if the party deceived finds it to be to his interest to affirm the transaction, which is a conceivable though not probable case. In the same way the party deceived must :be at liberty to treat the transaction as a voidable contract if he thinks fit. No doubt many transactions have in fact been so treated notwithstanding that under the law they might have been declared wholly void.

Sub-Ss. (3), (4), (5).---The language of the Act throws no light on the relation of fraud to misrepresentation. It might even be said to obscure it. That relation, however, may be very simply stated. Fraud, as a cause for the rescission of contracts, is generally reducible to fraudulent misrepresentation. Accordingly we say that misrepresentation is either fraudulent or not fraudulent. If fraudulent it is always a cause for rescinding a contract induced by it; if not, it is a cause of rescission only under certain conditions, which the definition of S. 18 are intended to express. There are, however, forms of fraud which do not at first sight appear to include any misrepresentation of fact, and sub-ss. 3, 4, and 5 are intended to cover these. With regard to a promise made without any intention of performing it (subs. 3) it may fairly be said that a promise, though it is not merely a representation of the promiser's intention to perform it, includes a representation to that effect. Some promises are given more readily and willingly than others; but we accept promises only because we believe them to be made in good faith, and no one would be content with a promise which he believed the promiser to have no intention of keeping. Similarly it is fraud to obtain properly, or the use of it, under a contract by professing an intention to use it for some lawful purpose when the real intention is to use it for an unlawful purpose. Our modern authorities have removed the difficulty which used to be felt in treating the statement of a man’s intention as a representation of fact. "There must be a misstatement of an existing fact, but the state of a man’s mind is as much a fact as the state of a man’s mind at a particular time is, but if it can be ascertained it is as much a fact as anything else." Accordingly it is fraud to obtain a loan of money by misrepresenting the purpose for which the money is wanted, even if there is nothing unlawful in the object for which the money is actually wanted and used. In particular, it is well settled that buying goods with the intention of not paying the price is a fraud which entitles the seller to rescind the contract. On the whole, then, sub-s. (3) of the present section did not introduced any novelty. Borrowing money with no intention of repaying it is cheating under the Penal Code, S. 415 illustration (f).

The mention of "any other act fitted to deceive" in sub-s. (4) appears to be inserted merely for the sake of abundant caution.

Acts and omissions specially declared to be fraudulent.---Sub-s. (5) applies to cases in which the disclosure of certain kinds of facts is expressly required by law, and non-compliance with the law is expressly declared to be fraud. Thus by S. 55 of the Transfer of Property Act, 1882, the seller of immovable property is required to disclose to the buyer "any material effect in the property or in the seller's title thereto of which the seller is, and the buyer is not, aware, and which the buyer could not with ordinary care discover," and the buyer to disclose to the seller "any fact as to the nature or extent of the seller's interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware and which materially increases the value of such interest," and "omission to make such disclosures...is fraudulent," and this, it seems, even if the omission be due merely to oversight. (https://www.paksearch.com/Government/CORPORATE/Contract/D77.htm) Various dealings with property are made voidable as being fraudulent, or declared to be fraudulent as against the transferor's creditors or assignees, by other enactment. But as these transfers of property cannot well be employed as inducements to any other party to enter into any contract beyond such agreement as is involved in the fraudulent transfer itself, they do not come within the scope of the Contract Act, and we have no occasion to dwell upon them here. (https://www.paksearch.com/Government/CORPORATE/Contract/D78.htm)

Mere non-disclosure.---There are special duties of disclosure (of which we have just seen an instance) in particular classes of contracts, but there is no general duty to disclose facts which are or might be equally within the means of knowledge of both parties. Silence as to such facts, as the Explanation to the present section lays down, is not fraudulent. There is a well-known American case on this point arising out of the conclusion of peace between Great Britain and the United States after the war commonly known as the war of 1812. The contract was for the gale of tobacco: the buyer knew, but the seller did not, that peace had been made; and on the seller asking if there was any news affecting the market price, the buyer gave no answer. The Supreme Court of the United States held that there was nothing fraudulent in his silence. (https://www.paksearch.com/Government/CORPORATE/Contract/D79.htm) But there are at least two practical qualifications of this rule. First, the suppression of part of the known facts may make the statement of the rest, though literally true so far as it goes, as misleading as an actual falsehood. In such a case the statement is really false in substance, and the willful suppression which makes it so is fraudulent. (https://www.paksearch.com/Government/CORPORATE/Contract/D80.htm) Secondly, a duty to disclose particular defects in goods sold, or the like, may be imposed by trade usage. In such a case omission to mention a defect of that kind is equivalent to express assertion that it does not exist. The illustrations will now be easily understood.

Fraud---Transaction induced by fraud---Effect---Exchange deed wherein · defendants showed themselves as full owners of property were guilty of suggesting a fact which was not true---Defendants, by such representation having deceived or induced plaintiff to enter into exchange with them were guilty of fraud within meaning S. 17---Exchange deed entered into by plaintiffs was a deed voidable at their option as their consent was secured through fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/D81.htm)

Contract vitiated by fraud and misrepresentation---Defendant may repudiate. The plaintiff entered into a contract with the defendant company and the contract, as found from the evidence and circumstances, of the case, was brought about as a result of a secret deal between the plaintiff on the one hand and the defendant's officer on the other hand and the defendant was persuaded to agree to the contract on the misrepresentation of the officer of the defendant.

Held: The defendant in the circumstances of the case is entitled to repudiate the contract on the ground of its being , vitiated by fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/D82.htm)

Fraud---Burden of proof of. Fraud involves firstly a finding in regard to facts. The burden of proof in such a case is on the party who alleges fraud. The Courts have to be careful in coming to a finding of fraud and should normally satisfy themselves that the finding is based on reliable evidence. The Court or authority competent to re-open a case should therefore satisfy itself from the material before it that the necessary situation as discussed above prima facie prevails, before it decides to proceed with a complaint for fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/D83.htm)

Fraud---What is---No fraud constituted where misrepresentation has been scrutinized before acting on it. There must be an intention to deceive or to induce a person by misrepresentation or active concealment of an existing fact, to do or omit to do anything which he would not have done but for the inducement. It is, therefore, necessary to prove that the act or omission was because of the inducement on account of the misrepresentation or concealment of fact and of not independent motives. There would be no cheating if the inducement had been subjected to scrutiny before the act or omission took place. (https://www.paksearch.com/Government/CORPORATE/Contract/D84.htm)

S. 17---Order obtained by fraud---Only voidable not void. (https://www.paksearch.com/Government/CORPORATE/Contract/D85.htm)

Fraud---Concurrent finding of Courts below---When P.C. will interfere. If the Privy Council was asked to reverse concurrent findings of both Courts below on an issue of fraud involving as one of its essential elements the intention to defraud, the party alleging fraud must make out a case for taking that course. (https://www.paksearch.com/Government/CORPORATE/Contract/D86.htm)

Agent selling goods getting secret commission from other party---Fraud---Contract void. Held: When a bribe or secret commission is given or a promise to pay it is made to an agent of an employer by a person who has entered into a contract for sale or purchase of property in order to induce the agent to act otherwise than with loyalty and fidelity to his employer, such a contract being based on fraud is void and not enforceable in law.

When a contract is found to be based on fraud, it becomes a voidable transaction and the affected party can repudiate it. The result of repudiation is that the aggrieved party will be restored to its original position and the party at fault can be compelled either to return the property or to compensate the aggrieved party. (https://www.paksearch.com/Government/CORPORATE/Contract/D87.htm)

Sale of land---Seller hiding facts about title to property---Buyer may repudiate agreement. The defendant suppressed this material fact pertaining to the title of the property from the plaintiff and he was perfectly justified in cancelling the contract on this ground.

In law a purchaser is entitled to repudiate a contract if tile seller's title to the property is not free from reasonable doubt. (https://www.paksearch.com/Government/CORPORATE/Contract/D88_89.htm)

Contract of Insurance---Concealment of fact in---Insured ship encountering mechanical defect resulting ill failure of battery---Anchor snapping---Respondent not disclosing such position of ship before securing insurance extension---Held, insured bound to disclose every circumstance which would influence decision of insurer in either insuring risk or fixing rate of premium. (https://www.paksearch.com/Government/CORPORATE/Contract/D90.htm)

Fraud---Transaction induced by fraud---Effect---Exchange deed wherein defendants showed themselves as full owners of property were guilty of suggesting a fact which was not true---Defendants, by such representation having deceived or induced plaintiff to enter into exchange with them were guilty of fraud within meaning of S. 17---Exchange deed entered into by plaintiffs was a deed voidable at their option as their consent was secured through fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/D91.htm)

18. "Misrepresentation" defined. "Misrepresentation" means and includes:---

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

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

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

Language of the section.---This is one of the sections taken wholly or in part from the draft Civil Code of New York, and it is one of the least satisfactory in point of form. In sub-s. 1 the use of the word "warranted" in a sense (whatever that sense may precisely be) unknown to the law, and in a subject-matter where the words "warranty and "condition" have already caused quite enough trouble, is an elementary fault. Nor is the intention of the qualifying clause, to which we shall return, altogether clear. However, the Contract Act has at least made some improvement on the classification of the New York draft, where the original of this clause stands under the head of Fraud. Sub-S. (2) is obscure and apparently useless. Sub-S. 3 (which does not occur in the New York draft Code 7 seems to involve confusion between contracts voidable because consent was obtained by misrepresentation and transactions which can have no legal effect, except possibly. by way of estoppel, because there was no real consent at all.

Sub-s. (1).---What is meant by "the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true"? Many persons would say that, in any ordinary use of the English language, the assertion of that which is not ture, though it may be innocent and even free from negligence, cannot be "warranted" in any manner. Now the framers of the New York Civil Code put this clause under the head of Fraud. Probably what they meant was that a misrepresentation made with reasonable and probable cause for believing it true should in no case be treated as fraud, but that a reckless or grossly negligent misrepresentation should be. The result would be to lay down a more stringent rule as to fraud. When this clause is transferred to the head of misrepresentation, it would seem to mean that innocent misrepresentation does not give cause for avoiding a contract unless the representation is made without any reasonable ground. The High Court of Calcutta has held that an assertion cannot be said to be "warranted" for the present purpose where it is based upon mere hearsay. Thus if A makes a positive statement to B that C would be a director of a company about to be formed, and B applies for shares on the faith of that statement, the statement would be a misrepresentation if A did not derive the information from C direct, but from a third party, D. In the course of the judgment Maclean C.J. said :"I need scarcely say that we must deal with this case according to the law of India and not of England, and if we find the term 'misrepresentation' defined by statute in this country, we must do our best to ascertain whether the case is brought within that statutory definition ..................[A] says that [D] told him that he [D] had authority from [C] to use his name in the prospectus as director, in other words, that he [A] obtained his information not from [C] direct, but only through [D] I am not disposed to think that if [A] had relied on the second-hand information he derived from [D], he was "warranted" in making the positive assertion that [C] would be a director". (https://www.paksearch.com/Government/CORPORATE/Contract/D92.htm) This appears to require, on the part of the person making the representation, a belief not merely having some reasonable ground---for it is often quite reasonable to act upon second-hand information, even when it is not unavoidable---but founded on the best information that is available. There is no reason to be dissatisfied with this judgment, through it may be matter of historical doubt whether the framers of the Act intended to go so far. The qualification does, not, of course, apply to the classes of contracts where there is a special duty to disclose all material facts within a party's knowledge. Outside these contracts of "abundant good faith" the rule of the High Court of Calcutta sets up a standard of diligence which may well be thought adequate; though it would not satisfy those learned writers in England and America who take the view that "innocent misrepresentation which brings about a contract is now a ground for setting the contract aside" in all cases.

We may refer to a Punjab case to illustrate the meaning of the expression "positive assertion." A sells a mare to B Before the sale A writes to B as follows, in answer to inquiries from B :"I think your queries would be satisfactorily answered by a friend if you have one in the station, and I shall feel more satisfied. All I can say is that the mare is thoroughly sound." The letter is a "positive assertion" of soundness coupled with a recommendation to B to satisfy himself before purchasing; but it does not amount to a warranty. (https://www.paksearch.com/Government/CORPORATE/Contract/D93.htm)

Sub-s. (2)---This sub-section is, as already stated, obscure. It was considered in a Bombay case (https://www.paksearch.com/Government/CORPORATE/Contract/D94.htm) by Sargent J. "The second clause of S. 18 is probably intended to meet all those cases which are called in the Courts of Equity, perhaps unfortunately so, cases of constructive fraud', in which there is no intention to deceive, but where the circumstances are such as to make the party who derives a benefit from the transaction equally answerable in effect as if he had been actuated by motives of fraud or deceit." In that case the plaintiffs, who were creditors of the defendants, sued to set aside a composition deed executed by their agents, alleging that their signature was obtained by a representation made by one of the defendants that the deed was nothing more than an assignment to trustees for the benefit of creditors, as agreed to in a previous meeting of the creditors. It was further alleged that the deed contained a release of which no mention was made at the meeting, and of which the plaintiffs' agents had no knowledge. Under those circumstances the High Court of Bombay declared the release absolutely void, on the ground that the deed as it was signed was essentially different from that which the plaintiff's agent intended to execute, or thought they were executing, when they affixed their signature to the deed. The Court went further, and said that there was another ground on which the plaintiffs were entitled to relief, namely, that there was a duty on the part of the defendants within the meaning of the present sub-section to communicate to the plaintiffs' agents the fact of the existence of the release and that the breach thereof entitled the plaintiffs to avoid the transaction under S. 19 of the Act. But it is submitted that the first sub-section was more applicable, as there was a "positive assertion" by one of the defendants that the document was nothing more than a mere assignment of the creditors' property to trustees.

This sub-section would also cover the position where a true statement is made, but it becomes false to the knowledge of the maker before it has been acted upon.

Sub-s. (3).---This sub-section was applied in a Bombay case, (https://www.paksearch.com/Government/CORPORATE/Contract/D95.htm) where it was held that though a company was not liable as drawer on a bill of exchange signed by two of the directors and the secretary, treasurer, and agent of the company, yet it was liable to the bank to which the bill was sold as for money received by the company to the use of the bank. The decision proceeded on the ground that the directors, while acting within the scope of their authority, had sold the bill as one on which the company was liable, but upon which, having regard to the form in which it was drawn, the company could not be rendered liable, and the directors were therefore guilty of misrepresentation within the meaning of the present sub-section. The case was no doubt within the terms of the Act, but it might have been decided on the broader ground that a buyer "is entitled to have an article answering the description of that which he bought," and that here the document which the bank had bought had not the force or value which it purported and was supposed to have. Thus it might be regarded as a case of common mistake under S. 20 of the Act, entitling the party who had paid money to recover it under S. 72. (https://www.paksearch.com/Government/CORPORATE/Contract/D96.htm) The defendants in Bombay chartered a ship wholly unknown to them from the plaintiffs, which was described in the charter-party, and was represented to them, as being not more than 2,800 tonnage register. It turned out that the registered tonnage was 3,045 tons. The defendants refused to accept the ship in fulfillment of the charter-party, and it was held that they were entitled to avoid the charter-party by reason of the erroneous statement as to tonnage. It is difficult to see how the Court, having regard to the terms of the Act and to the evidence of the usage of Bombay and the understanding of the parties in the particular case, could have decided otherwise. But this case does not necessarily lay down any rule that an error in stating the amount of tonnage will in general render a charter-party voidable.

Misrepresentation of fact or law.---It used to be said in English books that misrepresentation which renders a contract voidable must be of fact; but there does not seem to be really any dogmatic rule as to representations of law. The question would seem on principle to be whether the assertion in question was a mere statement of opinion or a positive assurance---especially if it came from a person better qualified to know---that the law is so and so. It seems probable in England, and there is no doubt here, that at any rate deliberate misrepresentation in matter of law is a cause for avoiding a contract. Where a clause of re-entry contained in a kabuliyat (counterpart of a lease) was represented by a zamindar's agent as a mere penalty clause, the Privy Council held that the misrepresentation was such as vitiated the contract, and the zamindar's suit was dismissed. (https://www.paksearch.com/Government/CORPORATE/Contract/D97.htm)

Misrepresentation of fact---Insured stating to have produced all relevant papers including registration book of car in name of former owner and mortgage deed before relevant officers of Insurance Company alongwith proposal form---Insured further stating that during currency of insurance policy, Insurance Company on perusal of such documents paid compensation to insured' for two other claims---Held, such facts lead to conclusion that insured made all facts known to Insurance Company and Insurance Company indicated declaration contrary to facts stated in registration book and issued insurance policy causing risk mentioned in policy. (https://www.paksearch.com/Government/CORPORATE/Contract/D98.htm)

19. Voidability of agreements without free consent. When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

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

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

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

(a) A, intending to deceive B, falsely represents that 500 maunds of indigo are made annually at A's factory, and thereby induces B to buy the factory. The contract is voidable at the option of B.

(b) A, by a misrepresentation, leads B erroneously to believe that 500 maunds of indigo are made annually at A's factory. B examines the accounts of the factory, which shows that only 400 maunds of indigo have been made. After this B buys the factory. The contract is not voidable on account of A’s misrepresentation.

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

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

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

Scope of the section.---The section states the legal effect of coercion, fraud, and misrepresentation, in rendering contracts procured by them voidable (https://www.paksearch.com/Government/CORPORATE/Contract/D98a.htm); the foregoing sections have only laid down their respective definitions. Perhaps the most important parts of the section, certainly those which need the most careful attention, are the exception and the explanation. These mark, though hardly with practical completeness, the limits within which the rule is applied. Before considering them we have to pause on the second paragraph of the body of the section. It reads plainly enough at first sight, but the thought does not seem to be really clear. The party entitled to set aside a voidable contract may affirm it if he thinks fit. That is involved in the conception of a contract being voidable. And if he affirms it, he may require the performance of the whole and every part of it (subject to the performance in due order of whatever may have to be performed on his own part) or, in default thereof, damages for non-performance (subject to special causes of excuse, if any, which we are not now considering). If, as may well be the case, the default is wholly or partly due to the non-existence of facts which the defaulting party represented as existing, this party can obviously not set up the untruth of his own statement by way of defence or mitigation; and, if the case is a proper one for specific performance, and if it is in his power to perform the contract fully, though with much greater cost and trouble than if his statement had been originally true, he will have to perform it accordingly. Is anything more than this meant by the declaration of the affirming party's right to "be put in the position in which he would have been if the representations made had been true"? There are obviously many cases in which such restitution is not literaly possible. Thus, if the owner of an estate subject to a lease for an unexpired term contracts to sell it to a purchaser who requires immediate possession, and conceals the existence of the lease. The purchaser cannot be put in the same position as if the representation that there was no tenancy, or only such a tenancy as could be determined at will, had been ture. Cases may occur, on the other hand, where a seller of land has held out, though not in express terms or willfully, an element of attractiveness or security in the property offered for sale which it is in his power to realise by some act or undertaking on or with regard to adjoining property of his own. But it is dangerous to formulate general propositions in the law of contract from decisions in suits for the specific performance of contracts relating to land, and it is not clear that the facts of the decision in question are not reducible to misrepresentation or an ambiguous offer. Nor is it certain that the present enactment can always be literally relied on. A sells a house to B, and by some blunder of A's agent the annual value is represented as being Rs. 2,000 when it is in truth only Rs. 1,000. According to the letter of the present paragraph, B, may insist on completing the contract and on having the difference between the actual and the stated value paid to him and his successors in title by A and A's successors in title for all time. Nothing short of that will put him "in the position in which he would have been if the representations made had been true." This is obviously not the intention of the enactment.

There is an important class of cases in which, although there is no such misrepresentation as to make the contract voidable, complete performance is, by reason of misdescription or otherwise, unattainable, and specific performance will be decreed subject to compensation for the defect. It was originally proposed to deal with such cases in the Contract Act. The enactment governing them is now to be found in the Specific Relief Act, S. 14.

Suit by representatives.---The option of avoiding a contract procured in any of the ways mentioned in Ss. 19, 10A, is exercisable by the party's representatives unless at the date of his death he had lost it by acquiescence or otherwise. It is rather surprising that the High Court of Bombay should have been called upon to reject an apparently serious argument to the contrary. (https://www.paksearch.com/Government/CORPORATE/Contract/D99.htm)

Exception: Means of discovering truth.---The exception is wider---we must suppose deliberately so. The test is not whether the party might have inquired for himself but whether he did inquire and trust his own inquiries rather than the representation; and so far is this doctrine from being confined to cases of actual fraud that there is no decisive or recent authority for not applying it even to cases where the misrepresentation consists only in failing to disclose some fact which ought to be disclosed. No doubt there may be a question whether the party alleged to have misrepresented a fact really said, "I tell you it is so," or only "I think you will find it so." This question will, according to the circumstances, be of the construction of particular words, or of the inferences to be drawn from words and conduct. Again, the possession of obvious means of knowledge may lead, in some cases, to a fair inference that those means were used and relied on. But still the real point to be considered is whether the party misled did put his trust in the representation made to him of which he complains, or in other information of his own. In the latter case the misrepresentation did not really cause his consent. In other words, the present Exception, so far as allowed by English law, is logically nothing but a branch of the following Explanation. However, the words of the Exception are perfectly clear. It will be observed that the Exception does not apply to cases of active fraud as distinguished from misrepresentation which is not fraudulent. (https://www.paksearch.com/Government/CORPORATE/Contract/E1.htm) The words "fraudulent within the meaning of S. 17" go with the word "silence" and not "misrepresentation". (https://www.paksearch.com/Government/CORPORATE/Contract/E2.htm) It has been held that if a person desirous of selling property causes letters to be written to him in which fictitious offers at high prices are made with the sole purpose of showing it to an intending purchaser, the making and exhibiting of such letters to the purchaser and thus inducing him to purchase the property amounts to fraud within the meaning of S. 17, and the case does not fall within the Exception to S. 19. A vendor of a house and land knew that the purchaser wanted immediate possession, and, while admitting that the property was occupied by a tenant, first concealed the fact that the tenant had a lease, and then pretended that the lease was forfeited; the purchaser was entitled to rescind the contract, although he might have ascertained by independent inquiry what the tenant's interest really was. (https://www.paksearch.com/Government/CORPORATE/Contract/E3.htm) A person purchased a decree obtained in favour of an insolvent from the Official Assignee for 20 per cent., of its face value by representing that the decree was practically unrealisable although he knew that satisfactory security had been given for the full amount of the decree. The Official Assignee was held entitled to rescind the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/E4.htm)

The ordinary diligence of which the Exception speaks may be taken to be such diligence as a prudent man would consider appropriate to the matter, having regard to, the importance of the transaction in itself and of the representation in question as affecting its results. A possibility of discovering the truth by inquiries involving trouble or expense out of proposition to the value of the whole subject-matter would not, it is conceived, be "means of discovering the truth with ordinary diligence." It was contended on behalf of the company that the exception to S. 19 was applicable to that case, and that the bank could have discovered with ordinary diligence that the company was not liable on a bill drawn by its secretary, treasurer, and agent. (https://www.paksearch.com/Government/CORPORATE/Contract/E5.htm) Sargent J. said: "No ordinary diligence would have enabled, the bank to discover that the company was not liable on this bill. The form of the bill would naturally lead the bank, as it admittedly did lead the bank to suppose that it was the company's bill as represented, and the discovery could only be made by persons trained in the law and after a careful examination of legal authorities."

Explanation: as to "causing consent."---The principle of the caution given here is obvious. A false representation, whether fraudulent or innocent, is merely irrelevant if it has not induced the party to whom it was made to act upon it by entering into a contract or otherwise. He cannot complain of having been misled by a statement which did not lead him at all. In the common phrase of English text-books, .the representation must be definable as dans locum contractui, bringing about the contract. Hence an attempt to deceive which has not in fact deceived the party can have no legal effect on the contract, not because it is not wrong in the eye of the law, but because there is no damage. This rule is applicable where a seller of specific goods purposely conceals a fault by some contrivance, in order that the buyer may not discover it if he inspects the goods, but the buyer does not in fact make an inspection. In particular cases it may be hard to determine whether a certain representation was in fact relied upon so that it can be said to have caused consent to the contract. This question, where it arises, is a question not of law, but of fact (https://www.paksearch.com/Government/CORPORATE/Contract/E6.htm), on which the character of the statement made and the probability that it would influence a reasonable man's determination may be taken into account. "If it is proved that the defendants with a view to induce the plaintiff to enter into a contract made a statement to the plaintiff of such a nature as would be likely to induce a person to enter into a contract, and it is proved that the plaintiff did enter into the contract, it is a fair inference of fact that he was induced to do so by the statement .... Its weight as evidence must greatly depend upon the degree to which the action of the plaintiff was likely, and on the absence of all other grounds on which the plaintiff might act". (https://www.paksearch.com/Government/CORPORATE/Contract/E7.htm) There is no rule of law that any particular kind of statement is necessarily material in some cases and immaterial in others.

The fact that a person has taken pains to falsify or conceal a fact is cogent evidence that to him at any rate that fact appeared material, and the falsification or concealment an important condition of obtaining the other, party's consent. A man who has so acted cannot afterwards turn round and say. "It could have made no difference if you had known the truth."

Illustrations.---There is nothing calling for particular comment in the illustrations to this section, except that the case put in illustration (c) would now be' more simply disclosed of under the specific provisions of the Transfer of Property Act.

Right of third party cannot be set up.---It is no defence to an apparently regular claim to property to suggest, without showing any title of one's own, that the original transaction from which the claimant's title is derived may have been voidable under this or the following section. (https://www.paksearch.com/Government/CORPORATE/Contract/E8.htm)

Gift under Muslim Law---Fraud in procuring gift---Principle of section applicable. A gift is not contract (though in Muslim Law it is called a contract) but the principle of section 19 may be applicable even to a gift. Therefore a gift tainted with fraud would be voidable and not void. (https://www.paksearch.com/Government/CORPORATE/Contract/E9.htm)

Contract by statutory body---Consent to contract given by Board under mistake of fact---Contract invalid. Held: The Karachi Port Trust is a statutory body and is governed by the statute and its bye-laws. Before a contract of high valuation could have been validly awarded, it would have to be with the consent not only of the Chief Engineer but also of the Board. In the present case, the Chief Engineer and the Board gave their consent upon a mistake of fact. Therefore there was no valid contract in existence. (https://www.paksearch.com/Government/CORPORATE/Contract/E10.htm)

Promise to do an act in future not performed---Not a misrepresentation. A promise to perform an act in future, if not fulfilled would not amount to misrepresentation. It may be a breach of promise or an agreement, but it is not a misrepresentation as to existing facts within the meaning of section 19. (https://www.paksearch.com/Government/CORPORATE/Contract/E11.htm)

Voidable contract acted upon---Cannot be challenged subsequently. (https://www.paksearch.com/Government/CORPORATE/Contract/E12.htm)

S. 19 read with S. 13 (2) Sale of Goods Act---Misrepresentation regarding the model of the car by the seller---if contract can be rescinded after the car had been used by the buyer. The plaintiff purchased a car from the defendant which he was wrongly told was 1949 model. He used the car for sometime and then found that it was 1948 model car. He therefore gave notice to the defendant that he rescinded the contract on ground of fraud and asked them to pay back the price of the car paid by him.

Held by Rehman C.J. on reference from D.B. There is no provision in the Sale of Goods Act, 1930, bearing on the effect of fraud, misrepresentation, coercion and undue influence, on a contract of sale. I would be, therefore, disposed to hold that the relevant provisions of the Contract Act on these questions continue to be applicable to contracts of sale despite the provisions of section 13 of the Sale of Goods Act. This section also does not contain any reference to cases of fraud etc, and apparently contemplates such cases as involve a breach of a condition without fraud, misrepresentation and the like affecting the formation of the contract itself, at its inception, if thus interpreted, there would be no difficulty in holding that section 19 of the Contract Act can stand with section 13 of the Sale of Goods Act, 1930. The result would be that in case of fraud and misrepresentation etc. vitiating the contract unless there was a waiver on the part of the party affected, the right of recision would not be lost. (https://www.paksearch.com/Government/CORPORATE/Contract/E13.htm)

Fraud---Limitation---Person in possession of land but a deed ownership of such land got executed by misrepresentation and fraud---Reason getting ownership of land by execution of such leed if suing for possession on basis of such deed and claiming deed to be genuine, executant of deed, held, within her right to plead deed being void on account of fraud and other party having no title or right to posses land and no impediment of limitation could arise to raise such plea. (https://www.paksearch.com/Government/CORPORATE/Contract/E14.htm)

Applicability---It is an essential requirement that when executing sale deed a person (pardanashin lady) should be in know that deed in question was of sale---S. 19 would not apply if her awareness was only that deed she was executing was a power of attorney. (https://www.paksearch.com/Government/CORPORATE/Contract/E15.htm)

Registered sale deeds on basis of agreement---Suit for declaration and cancellation of deeds on plea that documents were procured from plaintiffs by deceased through fraud and misrepresentation---Requires ad valorem court-fee---Court Fees Act (VIII of 1870), Ss. 3, 12. (https://www.paksearch.com/Government/CORPORATE/Contract/E16.htm)

19-A. Power to set aside contract induced by undue influence. When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option (if the party whose consent was so caused.

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

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

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

This section inserted by the Indian Contract Act Amendment Act, 1899, S. 3, appears to be intended to give express sanction to the constant practice of Indian Courts in cases of unconscionable money-lending, namely, to relieve the borrower against the oppressive terms of his contract, but subject to the repayment to the lender of the money actually advanced with reasonable interest. It has already been pointed that this branch of the law is now mainly governed by the money-lending legislation of a drastic kind in most parts of India.

The second paragraph is the only portion of the section that is new. However, as it stands it is virtually a reproduction of Ss. 35 and 38 of the Specific Relief Act. The combined effect of those two sections is that a contract in writing may be rescinded at the suit of a party when (amongst other causes) it is voidable, but that the Court may require the party rescinding to make any compensation to the other which justice may require. It may be noted that under the present section the contract need not be in writing. See also S. 64, below, which leaves no discretion to the Court in the matters of restitution.

The Select Committee gave the following reason for adding this section to the Act:---

"We have recast the language of the new S. 19-A of the Act of 1872 proposed by cl. 3 of the Bill, so as to bring it more closely into accord with the language of S. 19. A contract obtained by undue influence is on a different footing from a contract obtained by fraud. In the case of the latter a party who, with knowledge of the fraud, has taken any benefit under the contract, is held to have elected to affirm it; but where a contract has been obtained through the exercise of undue influence it is necessary that the Court should have power to relieve the party who acted under the undue influence, even although he may have received some benefit under the contract. On the other hand where such benefit has been received the Court ought to have full power to impose such conditions as may be just upon the party seeking relief."

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

Explanation.--- An erroneous opinion as to the value of the thing which forms the subject-matter of the agreement is not to be deemed a mistake as to a matter of fact.

(a) A agrees to sell to B a specific cargo of goods supposed to be on its way from England to Karachi. It turns out that, before the day of the bargain, the ship conveying the cargo had been cast away, and the goods lost. Neither party was aware of these facts. The agreement is void.

(b) A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

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

Scope of the section.--- The practical scope of this section is shown (though not completely) by the illustrations. No doubt is possible as to the actual solution, in any civilised system of jurisprudence, of the cases put. But the wording of the section (which follows the Indian Law Commissioners’ original draft) trends to obscure the principle which governs them. It is not that the mistake has any special operation because it is a mistake, but that the true intention of the parties was to make their agreement conditional on the existence of some state of facts which turns out not to have existed at the date of the agreement. Where the contract was for the sale of an object not existing, or which had ceased to exist according to the description by which it was contracted for, the result is still more easily apprehended if we say that there was nothing to buy and sell.

The mistake must be as to an existing fact.---The mistake must be "as to a matter of fact essential to the agreement." It is not enough that there was an error "as to some point, even though a material point, an error as to which does not affect the substance of the whole consideration." (https://www.paksearch.com/Government/CORPORATE/Contract/E17.htm) The circumstances, therefore, that at the date of lease neither the lessor nor the lessee supposed that the Government assessment would ever be increased will not avail the lessor to avoide the lease if the assessment is subsequently enhanced. "The circumstances that both the parties to the least supposed (if they did suppose) that the assessment would never be increased, did not prevent their united will from forming a contract, any more than from making the terms of the contract, when thus concluded, binding, in spite of any future change of circumstances. (https://www.paksearch.com/Government/CORPORATE/Contract/E18.htm)

In India the appropriate section would be S. 56 not S. 20. Even a mistake as to an existing fact will not render void an agreement concluded with retrospective effect, where the circumstances have changed between the date from which the agreement is to begin, and the date the bargain is concluded. (https://www.paksearch.com/Government/CORPORATE/Contract/E19.htm) There the company issued a cover note, insuring goods against fire with effect from a date three days before. Unknown to either party, the goods had been destroyed by fire two days before the issue of the cover note. The company was held liable. Where a settlement was entered into between Government and certain inamdars in respect of a village whereby the latter agreed to pay a certain yearly quit-rent, and both parties believed that the inamdars were the superior holders of all the lands in the village, it was held that the settlement was void as regards a portion of the lands which subsequently turned out to be wanta lands held by certain girassias as owners in possession. (https://www.paksearch.com/Government/CORPORATE/Contract/E20.htm) Where a property agreed to be sold had been notified for acquisition under the Calcutta improvement Act, and neither the vendor nor the purchaser was aware of the notification at the date of their agreement, the notification was held to constitute a matter of fact essential to the agreement within the meaning of this section and the agreement was declared void. (https://www.paksearch.com/Government/CORPORATE/Contract/E21.htm) Upon the same principles a compromise of a suit will be set aside if it was brought about under a mistake as to the subject-matter of the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/E22.htm) Not only a compromise, but an order of the Court made by consent, may be set aside if the arrangement was entered into even under a one-sided mistake of counsel to which the other party, however innocently, contributed, or even otherwise if the mistake was such as to prevent any real agreement from being formed. A fortiori it is so in the case of the mistake being common to both parties. The existence of a separate warranty in a contrail of sale is evidence that the matter of the warranty is not an "essential" part of the contract. In such a case, if there is a breach of the warranty, the purchaser is only entitled to compensation for the breach, and the sale is not even voidable. It is still a stronger case where not only no warranty is given by the vendor, but the purchaser buys "subject to all defects". Thus, where a mortgagee sold his claim under the mortgage subject in effect to all defects, and it was subsequently discovered that the mortgage was inoperative, as it was attested by only one witness, it was held that, though both parties were ignorant of that fact at the time of the assignment, the purchaser was not entitled to rescind the contract and claim back the purchase-money, the purchase having been made subject to all defects. (https://www.paksearch.com/Government/CORPORATE/Contract/E23.htm) An administration bond given under S. 256 of the Succession Act, 1865 (now S. 291 of the Indian Succession Act, 1925) is not void under this section, though the party to whom the grant of letters of administration is made may have obtained the grant by fraud upon the Court, and though neither the sureties nor the Court to which the bond is passed were aware of the fraud when the grant was made. In a modern case letters of administration of the estate of a deceased person were granted to A on execution of a bond by him and two sureties engaging for the due administration of the estate. It was subsequently discovered that A was not entitled to the grant, and that he had obtained it by false and fraudulent representations made in his petition for letters of administration. The grant to A was thereupon revoked, and a suit was brought against the sureties to recover from them the amount misappropriated by A and forming part of the estate. One of the defences raised on behalf of the sureties was that the bond was void under the present section, and that they were not therefore liable upon the bond. It was contended that both the Court and the sureties were under a mistake as to a matter of fact "essential" to the agreement, namely, that A was entitled to letters of administration, and that the sureties would not have executed the bond but for that mistake. But a majority of the High Court of Calcutta held that the mistake of the Court and of the sureties did not relate to the essential subject of the contract. The decision was also based on the ground that the liability of sureties under an administration bond did not depend on the Validity or invalidity of the grant. (https://www.paksearch.com/Government/CORPORATE/Contract/E24.htm) This decision was upheld on appeal to the King of Council. The same principle has been held to apply to surety bonds under the Guardians and Wards Act, 1890. Thus, where A was appointed guardian of the property of a minor on passing a bond to the District Court executed by him and B, as surety for the due management and realisation of the minor's property, and failed to account for the income of certain property which actually belonged to the minor, but was not included in the list of properties belonging to the minor annexed to the petition for his appointment, it was held that B was liable to make good the amount, though it might be said that both the Court and B were led to believe by A that the property did not belong to the minor. (https://www.paksearch.com/Government/CORPORATE/Contract/E25.htm)

In a Bombay case, (https://www.paksearch.com/Government/CORPORATE/Contract/E26.htm) A, fraudulently representing himself to be B, purported to mortgage to C property belonging to B C then transferred the pretended mortgage to D. D insisted that the mortgagor should be a party to the deed of transfer. A still personating B, joining in executing that deed as a concurring party. The deeds of mortgage and transfer contained the usual covenants. D subsequently discovered that the mortgage and transfer deeds were not executed by B, but by A, personating him, and he sued C, for return of the transfer money. The Court of first instance held that D was not entitled to a return of the transfer money; but, on appeal, the case was held to be one of a mistake of fact under this section, so that C was bound under S. 65 to repay the transfer money to D. The correctness of the reversal seems doubtful. On principle D was not entitled to recover as on a total failure of consideration; for, although the assignment passed nothing as a conveyance, it gave D, a title to the debt (for which the property was only a security) as against A, who was clearly estopped from denying his identity with B for this purpose; and likewise, by estoppel, a right of action against him on the mortgagor's covenant for title express or implied. Morever D, having required the supposed B's concurrence, had not relied on any assurance of C's as to the reality of the mortgage made in the name of B. The fact (as presumably it was) that A was missing or insolvent or both does not affect the legal result. Then as to the Indian Acts, it is obvious that there was no contract formed between C and D; but D paid C not under the agreement but as consideration for an assignment made in pursuance of it, and therefore it does not appear that S. 65 of the present Act applies to this case; neither does anything in the Transfer of Property Act seem applicable.

Rectification.---The Courts will not rectify any instrument on the ground of mistake unless it is shown that there was an actual concluded contract antecedent to the instrument sought to be rectified, and that the contract is inaccurately represented in the instrument. Thus in a Bombay case, (https://www.paksearch.com/Government/CORPORATE/Contract/E27.htm) the plaintiffs chartered a steamer from the defendants to sail from Jedda on "the 10th August, 1892 (fifteen days after the Haj)," in order to convey pilgrims returning to Bombay. The plaintiffs believed that "the 10th August, 1892," corresponded with the fifteenth day after the Haj, but the defendants had no belief on the subject, and contracted only with respect to the English date. The 19th July, 1892, and not the 10th August, 1892, in fact corresponded with the fifteenth day after the Haj. On finding out the mistake the plaintiffs sued the defendants for rectification of the charter-party. It was held that the agreement was one for the 10th August, 1892; that the mistake was not mutual, but on the plaintiffs' part only; and, therefore, that there could be no rectification. The Court further expressed its opinion that even if both the parties were under the mistake, the Court would not rectify, but only cancel, the instrument, as the agreement was one for the 10th August, 1892, and that date was a matter materially inducing the agreement. See also Specific Relief Act, Ch. III below, and the undermentioned case. (https://www.paksearch.com/Government/CORPORATE/Contract/E28.htm)

Compensation.---Note, in connection with the present section, the provision of S. 65 that when an agreement is discovered to be void any person who has received any advantage under the agreement is bound to restore it, or to make compensation for it, to the person from whom he received it. It is or should be elementary learning that a deficiency in quantity of land (or anything) sold which can be adequately dealt with by compensation does not come within this section at all. (https://www.paksearch.com/Government/CORPORATE/Contract/E29.htm)

Mistake of fact in regard to area or identification of land sold and such mistake needing rectification---Cannot be treated as a mistake on basis of which whole contract can be avoided. (https://www.paksearch.com/Government/CORPORATE/Contract/E30.htm)

Ss. 20, 56.---Contract void under S. 20--.If compensation payable under S. 56. Held: that the third paragraph of section 56, Contract Act, requiring compensation to be paid to the promisee for the failure of performance of a contract, on account of its impossibility or unlawful nature, which impossibility or unlawful nature was known, or might, with reasonable diligence, have been known to the promisor applied only where an agreement otherwise valid was rendered void by such impossibility of performance. There, compensation was not payable under section 56 in respect of non-performance of a contract which was void under section 20, Contract Act, for a mutual mistake as to matter of fact essential to the (https://www.paksearch.com/Government/CORPORATE/Contract/E31.htm)agreement. (https:///)

Mutual misapprehension about contract---Party abandoning right under contract---Abandonment is ineffective. Where on account of a mutual misapprehension about a contract one of the parties abandoned his rights under it.

Held: If there was no misrepresentation and both parties had been labouring under a misapprehension that the contract had been cancelled, the abandonment of a right under the contract due to a mutual mistake, would not affect the plaintiff's rights. Under section 20 of the Contract Act an agreement based on a mutual mistake is void and the same principle will apply to an abandonment of a right under a contract. (https://www.paksearch.com/Government/CORPORATE/Contract/E32.htm)

Mistake of fact.--Contract may be avoided for, if both parties are under mistake---Cannot be avoided where one party is under mistake. Held: to avoid a contract on the ground that it is void for mistake, both parties to the contract should be under a mistake as to a matter of fact essential to the agreement, as required by section 20 of the Contract Act and, further, under section 22 of the Contract Act, a contract is not voidable because one of the parties only is under a mistake as to a matter of fact. (https://www.paksearch.com/Government/CORPORATE/Contract/E33.htm)

21. Effect of mistakes as to law. A contract is not voidable because it was caused by a mistake as to any law in force in Pakistan but a mistake as to a law not in force in Pakistan has the same effect as a mistake of fact.

After the establishment of Pakistan this section applies in relation to Central Acts made for an acceding State as it applies to law in force in Pakistan. (https://www.paksearch.com/Government/CORPORATE/Contract/E34.htm)

A and B make a contract grounded on the erroneous belief that a particular debt is barred by the Pakistan Law of Limitation. The contract is not voidable.

The general language of this section represents with approximate fidelity the current doctrine of text-books down to the time when the Act was framed, namely, that relief is not given against mistake of law. However, modern authority has shown that the doctrine in question is not acceptable without rather large qualifications which, it is apprehended, Indian practitioners cannot safely neglect. Certainly mistake of law does not universally or generally invalidate transaction in which it occurs; but neither does mistake of fact. A man cannot go back upon what he has deliberately done, not to speak of excusing himself from liability for a wrongful act or offence merely because he alleges that he acted under a misapprehension of the law. It is a citizen's business to know, by taking professional advice or otherwise, so much law as concerns him for the matters he is transacting. No other general rule is possible, as has often been observed, without offering enormous temptations to fraud. And in India it does not seem that the present section was intended to give validity to any apparent agreement not satisfying the conditions of real consent as laid down in Ss. 10 and 13. Moreover, it is to be observed that the existence of particular private rights is matter of fact, though depending on rules of law, and for most civil purpose ignorance of civil rights, a man's ignorance that he is heir to such and such property, for instance, is ignorance of fact. A man's promise to buy that which, unknown to him, already belongs to him is not to be made binding by calling his error as to the ownership a mistake of law. (https://www.paksearch.com/Government/CORPORATE/Contract/E35.htm) There seems to be nothing to prevent the Courts from following English authority in cases of this kind, as in fact the Calcutta High Court has done. (https://www.paksearch.com/Government/CORPORATE/Contract/E36.htm) A, agreed to take a lease from B, of certain lands including mineral rights for coal mining operations; it was provided that B. should make out a good title to the property. The lease was held by B on a tenure which was believed by both A and B at the date of agreement to carry with it mineral rights. A made payments in advance to B, but later when a decision of the Privy Council and a decision of the Calcutta High Court threw very grave doubts upon this understanding of the law, A refused to carry out the agreement, and sued B. for refund of advances. It was held that the case was one of a common mistake as to a matter of fact, and that the agreement was void under S. 20, and A. was entitled to a refund of the advances made by him.

Again, the section does not say that misrepresentation, at any rate willful misrepresentation, or matter of law, may not be ground for avoiding a contract under S. 17 or S. 18.

As to the second clause of the section, Indian jurisprudence has adopted the rule of the Common Law that foreign law is a matter of fact, and must be proved or admitted as such, though the strictness of the rule has been somewhat relaxed by the Evidence Act. Accordingly the statement or finding of any foreign law on which the Court proceeds in a given case is no more binding on the Court in any future case, even apart from the possibility of alternation in the law in question, than any other determination or assumption as to matters of fact.

The cases in which the present section has actually been applied have been fairly simple. Thus where a mortgage bond provided that if the mortgagor failed to redeem the mortgaged property within eight years the mortgagee should be the owner of the property, and the mortgagor, being unable to rendeem, executed an absolute transfer of the property to the mortgagee, and put him in possession, it was held that a purchaser from the mortgagor of the equity of redemption subsequent to the date of the transfer was not entitled to redeem, even though the mortgagor might have been ignorant of his right to redeem the mortgage notwithstanding the clause in the mortgage precluding him from doing so. (https://www.paksearch.com/Government/CORPORATE/Contract/E37.htm) Here there was a complete conveyance and transfer of possession from the mortgagor to the mortgagee. But if the matter had rested in contract only, and there was no transfer of the mortgaged property, the mortgagor would have been entitled to redeem the mortgage, on the principle "Once a mortgage, always a mortgage." The would have been no consideration for a promise to transfer the property to the mortgagee, and the question whether there was any mistake, and, if so, whether of fact or law, would really have been superfluous.

An erroneous belief that a widow forfeits by her remarriage the rights of an occupancy tenant under the N.W.F.P Tenancy Act, to which she has succeeded on the death of her first husband as his heir, is a mistake of law, and a contract grounded on such belief is not voidable, though the mistake may be common to both the parties to the contract, (https://www.paksearch.com/Government/CORPORATE/Contract/E38.htm) Similarly, an erroneous belief that a judgement-debtor is bound by law, to pay interest on the decretal amount, though no interest has been awarded by the decree, is a mistake of law, and a contract grounded on such belief is not voidable. Such a belief is not a belief as to a matter of fact essential to the agreement within the meaning of S. 20; the Privy Council so held in Seth Gokal Dass case. (https://www.paksearch.com/Government/CORPORATE/Contract/E39.htm) This is difficult to reconcile with a decision of the Bombay High Court that a contract founded upon the erroneous belief that a judgment-debtor is bound by law to pay interest on the decretal amount, though no interest has been awarded by the decree, was void under S. 20, as being a contract entered into under a mistake as to a matter of fact essential to the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/E40.htm) It was said in that case that such a mistake was "a mistake as to the private rights of the parties and as such a mistake of fact." That such a mistake is not a mistake of fact, but one of law, is abundantly clear from, where their Lordships said: "There was, no doubt, a mistake of law on the part of the defendants in supposing that execution could be issued for interest upon the amount decreed from the date of the decree to the date of realisation, no such interest having been awarded by the decree. But that mistake appears to have been common not only to the plaintiff and the defendants, but also to the Court which made the order of attachment."

Miscalculation of a legal right---Not a mistake contemplated under S. 21. The agreement between the parties was that they would get their shares of inheritance according to Muslim law.

Held; When the arrangement is that parties will get what they are entitled to under the law, the arrangement is not hit by section 21 just because in the calculation of the legal rights some mistake is made. (https://www.paksearch.com/Government/CORPORATE/Contract/E41.htm)

Payments made under mistake of law---When refundable. Section 21 deals only with mistakes of law which "cause a contract" or which give birth to a contract; it has nothing to do with any other kind of mistake. If therefore, a payment made under a mistake of law is not the origin of a contract such payment would be refundable under S. 72. The English common law rule that a payment made under a mistake of law is not recoverable can have no application in India where there is a statute governing the question. (https://www.paksearch.com/Government/CORPORATE/Contract/E42.htm)

12-19-2010, 01:47 AM
22. Contract caused by mistake of one party as to matter of fact. A contract is not voidable merely because it was caused by one of the parties to it being under a mistake as to a matter of fact.

At this day this section may seem open to the remark that it contradicts a proposition which no competent lawyer would think of asserting. But when the Act was framed it was not obviously superfluous; for strange things had been said within the foregoing ten years or thereabouts by one or two of the Judges of the Court of Chancery, and lawyers practising in the Courts, as they then were, of Common Law were not expected to have any knowledge of equity, and regarded the doctrines laid down in the name of equity by Vice-Chancellors as mysteries which did not concern them.

23. What considerations and objects are lawful and what not. The consideration or object of an agreement is lawful, unless:--- it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or

is fraudulent; or involves or implies injury to the person or property of another; or

the Court regards it as immoral, or opposed to public policy.

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

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

(b) A promises to pay B 1,000 rupees at the end of six months if C, who owes that sum to B, fails to pay it. B promises to grant time to C accordingly. Here the promise of each party is the consideration for the promise of the other party, and they are lawful considerations.

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

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

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

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

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

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

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

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

(k) A agrees to let her daughter on hire to B for concubinage. The agreement is void, because it is immoral, though the letting may not be punishable under the Pakistan Penal Code.

Unlawful Objects.---By S. 10 an agreement is a contract (i.e. enforceable) only if it is made for a lawful consideration and with a lawful object. The present section declares what kinds of consideration and object are not lawful. Its phraseology is not happy. Property we speak of the consideration for a promise, not the consideration of an agreement. If I agree to sell you a piece of land for Rs. 20,000, my promise to convey the land is the consideration for your promise to pay the price, and your promise to pay the price is the consideration for my promise to convey the land. There is nothing that can be called the consideration of the agreement between us as a whole. If we read "promise" for "agreement" the text becomes clearer; and S. 2 (e), though that sub-section is itself not as clear as might be desired, appears to warrant us in doing this. See also illustration (a) to the present section.

The word "object" in this section was not used in the same sense as "consideration", but was used as distinguished from "consideration", and meant "purpose" or "design". (https://www.paksearch.com/Government/CORPORATE/Contract/E43.htm) It was so observed in a case where A had agreed to sell goods to B, and B while in insolvent circumstances assigned the benefit of the contract to his brother-in-law C for a consideration of Rs. 100, the object both the B and C being to defraud B's creditors. It was said that the consideration for the assignment, namely, the sum of Rs. 100, was lawful, but the object was unlawful, as it was to defeat the provisions of the Insolvency Act. (https://www.paksearch.com/Government/CORPORATE/Contract/E44.htm)

With regard to a consideration being forbidden by law, it is to be observed that, where the consideration is a promise, it may be forbidden in one of two distinct senses. The promise may be of something which it would be unlawful to perform; and here it is perhaps simpler to say that the object of the agreement, namely, the unlawful performance, is forbidden. Sometimes, on the other hand, although there is nothing unlawful in performing the promise, a positive rule of law, founded on reasons of general expediency, will not suffer any legal obligation to arise from a promise of that kind. So it is in the cases of wagers, and of agreements in restraint of trade outside the limited sanction given to them. In such cases we shall say that the object of the agreement is not unlawful if by "object" we mean the actual performance; but we shall say that it is unlawful if by "object" we mean the creation of an obligation to perform the things promised. This ambiguity is not cleared up by anything in the language of the Act. It does not, however, seem material for any practical purpose.

There is another possible reason however, for the use of the word "consideration". A man may enter into a contract lawful in itself, and perform it in such a manner or by such means as to violate some distinct requirement or prohibition of law. By so doing he may deprive himself of any claim to recover on the other party's promise to pay for his work, and this whether the other party knew any thing beforehand of his unlawful action or not. Now in an agreement by mutual promises each of the promises is, properly speaking, the consideration, and the only consideration, for the other; but in discussing the subsequent duties of the parties as to performance the word "consideration" is sometimes applied, in a loose and extended sense, to those cases where the duty of performance on the one part is, according to the original intent of the agreement, conditional on previous or simultaneous performance on the other. In this inaccurate but not uncommon sense it may be said that, when a promisor who might have performed his promise lawfully performs it unlawfully, the consideration for the reciprocal promise becomes unlawful; and the language of the Act may have been designed to cover such cases.

Unlawful intention, like negligence, is not presumed by the law, nor is any man expected to presume it without evidence. Therefore, if a contract can on the face of it be lawfully performed, the existence of an undisclosed intention by one party to perform it unlawfully, or use it as part of an unlawful scheme, will not disable the other party from enforcing it, at any rate by way of damages; and if the construction is doubtful, that construction which admits of a lawful performance is to be preferred. Again, if there exists or arises a legal impediment, unknown to the parties at the time of the contracting, to the performance of a contract in the manner which otherwise would have been the most obvious, this will not of itself avoid the contract if it can still be substantially performed without breaking the law. But if both parties in fact contemplate an unlawful manner of performance, the case falls within the rule "that a contract lawful in itself is illegal if it be entered into with the object that the law should be violated. (https://www.paksearch.com/Government/CORPORATE/Contract/E45.htm) A contemplated unlawful or immoral use of property (including money) to be obtained under a contract is an unlawful object within the meaning of this rule, and this whether such use is part of the bargain or not, and whether the party supplying the property is to be paid out of the profits of its unlawful use or not. If both parties know of the wrongful or immoral intention, the agreement is void; if the party who is to furnish the property does not know of it, the contract is voidable at his option when he discoveries the other party's intent.

An agreement may be rendered unlawful by its connection with a past as well as with a future unlawful transaction. Thus the giving of security for money purporting to be payable under an agreement whose purpose was unlawful is itself an unlawful object, even though it was not stipulated for by the original agreement. In a Calcutta case property was leased for the purpose of carrying on organized prostitution. The lessee deposited a sum of money with the lessor for which the lessor subsequently passed a promissory note. The suit on the promissory note was dismissed on the ground that a bond or other instrument connected with an illegal agreement could not be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/E46.htm)

With regard to the tendency of an agreement to "defeat the provisions of any law," these words must be taken as limited to defeating the intention which the Legislature has expressed, or which is necessarily implied from the express terms of an Act. It is unlawful to contract to do that which it is unlawful to do; but an agreement will not be void merely because it tends to defeat some purpose ascribed to the Legislature by conjecture, or even appearing, as matter of history, from extraneous evidence, such as legislative debates or preliminary memoranda not forming part of the enactment. It is not defeating the provisions of a law to take advantage of the lack of any provision for some particular case. If the enactment as it stands is intelligible, the Court cannot assume that the omission was not intended.

An agreement entered into with a fraudulent object is a particular species of the genus of agreements contemplating or involving injury to the person or property of another. The general term "injury" means criminal or wrongful harm. Evidently there is nothing unlawful in agreeing to carry tin a business lawful in itself, though the property of rivals in that business may, in a wide sense, be injured by the consequent and intended competition.

There is no department of the law in which the Courts have exercised larger powers of restraining individual freedom on grounds of general utility, and it is impossible to provide in terms for this discretion without laying down that all objects arc unlawful which the Court regards as immoral or opposed to public policy. The epithet "immoral" points, in legal usage, to conduct or purposes which the State, though disapproving them, is unable, or not advised, to visit with direct punishment. "Public policy" points to political, economical, or social grounds of objection, outside the common topics of morality, either to an act being done or to a promise to do it being enforced. Agreements or other acts may be contrary to the policy of the law without being morally disgraceful or exposed to any obvious moral censure.

"Forbidden by law."---An act or undertaking is equally forbidden by law whether it violates a prohibitory enactment of the Legislature or a principle of unwritten law. But in India, where the criminal law is codified, acts forbidden by law seem practically to consist of acts punishable under the Penal Code and of acts prohibited by special legislation, or by regulations or orders made under authority derived from the Legislature. Parties are not, as a rule, so foolish as to commit themselves to agreements to do anything obviously illegal, or at any rate to bring them into Court; so the kind of question which arises in practice under this head is whether an act, or some part of a series of acts, agreed upon between parties, does or does not contravene some legislative enactment or regulation made by lawful authority. The decision may turn on the construction (If the agreement itself, or of the term of the Act or other authoritative document in question, or on both. In particular it may have to be considered whether the intention of the legislator was to prevent certain things from being done, or only to lay down terms and conditions on which they might be done. (https://www.paksearch.com/Government/CORPORATE/Contract/E47.htm) It is easy to say that properly drawn Acts or Regulations ought to leave no doubt on the point, but experience has shown that such doubts are possible and have not been uncommon. Broadly speaking, that which has been forbidden in the public interest cannot be made lawful by paying the penalty for it; but an act which is in itself harmless dries not become unlawful merely because some collateral requirement imposed for reasons of administrative convenience has been omitted. There was a time when the English Courts almost regarded it as meritorious to evade statutory regulations, and encouraged evasions of them by free distinction; but that attitude is long out of date, and examples of it cannot now be taken as precedents.

Cases under this head have arisen principally in connection with Excise Acts, and they have almost all been decided with reference to English law. The principles may be stated thus; "When conditions are prescribed by statute for the conduct of any particular business or profession, and such conditions are not observed, agreements made in the course of such business or profession are void if it appears by the context that the object of the Legislature in imposing the condition was the maintenance of public order or safety or the protection of the persons dealing with those on whom the condition is imposed; are valid if no specific penalty is attached to the specific transaction, and it appears that the condition was imposed for merely administrative purposes, e.g., the convenient collection of the revenue". (https://www.paksearch.com/Government/CORPORATE/Contract/E48.htm)

The High Court of Bombay acted on these principles, (https://www.paksearch.com/Government/CORPORATE/Contract/E49.htm) where the question arose whether an agreement by a lessee of tolls from Government under the Bombay Tolls Act, 1875, to sublet the tolls was valid and binding between the lessee and sub-lessee. S. 10 of the Act empowered the Government to lease the levy of tolls on such terms and conditions as the Government deemed desirable. One of the conditions of the lease was that the lessee should not sublet the tolls without the permission of the Collector previously obtained, and another condition empowered the Collector to impose a fine of Rs. 200 for a breach of the condition. The lessee sublet the tolls to the defendant without the permission of the Collector, and then sued him to recover the amount which he had promised to pay for the sublease. It was contended on behalf of the defendant that the sublease was unlawful, as it was made without the permission of the Collector, and that the lessee was not therefore entitled to recover the amount claimed by him. But this contention was overruled. Parsons J., after citing the passage set forth above, said: "In our opinion this case falls within the latter class, because the statute itself does not forbid or attach a penalty to the transaction of subletting, but merely gives power to impose a condition under which it can be forbidden should the Collector see fit to do so far what can be only purely administration purposes. The Act imposing tolls in an Act passed for the benefit of the revenue and not an Act for the protection of public morals." Ranade J. said: "As a general rule, the law does not forbid things in express terms, but imposes penalties for doing them, and the imposition of such penalties implies prohibition, and an agreement to do a thing so prohibited is unlawful under section 23 of the Contract Act. As no penalties are prescribed under the [Tolls] Act, the agreement does not prima facie fall under the 1st clause of section 23." Similarly where the lessee of a ferry under the Madras Ferries Act, 1890, transferred the ferry to the defendant without the permission of the Collector as required by the terms of the lease, it was held that the transfer was not for that reason unlawful, as neither the Act nor any rule framed under the Act prohibited such transfer. In such a case, though the transfer may be invalid against Government, it is valid as between the transferor and transferee. (https://www.paksearch.com/Government/CORPORATE/Contract/E50.htm) The above Acts, which are intended solely for the protection of revenue, must be distinguished from Abkari and Opium Acts, which have for their object the protection of the public as well as the revenue. Similarly, a partnership agreement entered into in violation of the terms of a license granted under the Bombay Abkari Act, 1878, which prohibited the licensee from admitting any partner in the business, the violation being punishable under the Act, is void as forbidden by law; (https://www.paksearch.com/Government/CORPORATE/Contract/E51.htm) and if a person, being aware of this prohibition, does join as a partner, and advances capital for that purpose, he cannot recover back the amount advanced.

A distincution is, however, made between a case in which the partner merely shares in the profits and takes no active part in the sale of liquor, and a case in which the Partnership deed entitles the other partners to take part in the business of the licensee. (https://www.paksearch.com/Government/CORPORATE/Contract/E52.htm) The Privy Council held that an agreement to share the profits of the licensee's business did not amount to subletting or alienation of the license. (https://www.paksearch.com/Government/CORPORATE/Contract/E53.htm) Accordingly it has been held that where a license has been granted to partners, and one of the partners enters into a sub-partnership, such a sub-partnership does not amount to a subletting or transfer of the license, as the sub-partner cannot interfere in the business of the licensees. (https://www.paksearch.com/Government/CORPORATE/Contract/E54.htm) A license under the Abkari Act cannot be obtained benami, as that would defeat the purpose of the Act, and therefore no suit can be filed against the benamidar to recover any sum of money from him. (https://www.paksearch.com/Government/CORPORATE/Contract/E55.htm)

A contract to obtain a license and do a thing in accordance with law is not illegal but initially valid, (https://www.paksearch.com/Government/CORPORATE/Contract/E56.htm) and even though the agreement subsequently becomes illegal because no licence is obtained, S. 65 will apply and any advantage received under the contract must be restored. (https://www.paksearch.com/Government/CORPORATE/Contract/E57.htm)

In a Madras case an agreement by a Madras District Municipality by which it farmed out its right to collect fees on the slaughter of animals was held void as being ultra vires, so that the Municipality could not sue on it. The Court said "The powers of a Corporation must be strictly construed and it is hardly too much to say that what is not permitted to such a body is forbidden." (https://www.paksearch.com/Government/CORPORATE/Contract/E58.htm) But this, according to current English authorities, is not accurately expressed. There is no such rule of construction as supposed, and acts ultra vires are not forbidden; the attempt to do such an act is a nullity. Cases on the doctrine of ultra vires are not realy relevant to S. 23.

"Defeat the provisions of any law."---The term "law" in this expression would seem to include any enactment or rule of law for the time being in force in India. This branch of the subject may thus be considered under three heads according as the object or consideration of an agreement is such as would defeat (1) the provisions of any legislative enactment, or (2) the rules of Hindu or Muhammadan law, or (3) other rules of law for the time being in force in India. (https://www.paksearch.com/Government/CORPORATE/Contract/E59.htm)

Rules of Hindu and Muhammadan law.---The rules must of course be such as are recognized and enforceable by Courts of law; they do not include rules of an exclusively religious character which operate in foro conscientiae only.

An agreement entered into before marriage between a Muhammadan wife and husband by which it is provided that the wife shall be at liberty to live with her parents after marriage is void, and does not afford an answer to a suit for restitution of conjugal rights. (https://www.paksearch.com/Government/CORPORATE/Contract/E60.htm) And so is an agreement entered into after marriage between a Muhammadan wife and husband who were for some time prior to the agreement living separate from each other, providing that they should resume cohabitation, but that if the wife should be unable to agree with the husband she should be free to leave him. (https://www.paksearch.com/Government/CORPORATE/Contract/E61.htm) Upon the same principle, an agreement between a Muhammadan husband and wife for a future separation is void, and the wife cannot on separation recover the maintenance allowance provided by the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/E62.htm) But an agreement made between a Muhammadan wife and husband entered into before marriage by which it is provided that the wife shall be at liberty to divorce herself from her husband under certain specified conditions is valid, if the conditions are of a reasonable nature and are not opposed to the policy of the Muhammadan law. When such an agreement is made, the wife may, at any time after the happening of the contingencies, repudiate herself, in the exercise of the power, and a divorce will then take effect as if the talaq had been pronouncedm by the husband. This is known in Muhammadan law as talaq (divorce by the husband) by tafwiz (delegation), the wife being as it were, the delegate of the husband to pronounce the talaq. (https://www.paksearch.com/Government/CORPORATE/Contract/E63.htm) An agreement contemporary with the marriage whereby the husband undertook not to ill-treat his wife and also agreed that the wife would be entitled to claim the customary maintenance allowance if relations between husband and wife became strained is not void. (https://www.paksearch.com/Government/CORPORATE/Contract/E64.htm)

Other rules of law in force in India.---It is now a settled principle of law that where a decree is silent as to subsequent interest on the amount decreed, interest cannot be recovered by proceedings in execution of the decree. But an agreement in the nature of a compromise between a decree-holder and a judgment-debtor, which proceeds upon ignorance common to both parties thereto, as to the above principle, is not illegal as defeating the provisions of that law. Again, it is a well-established rule of law that, unless a will is proved in some form, no grant of probate can be made merely on the consent of parties. Hence an agreement or compromise as regards the genuineness and due execution of a will, if its effect is to exclude evidence in proof of the will, is not lawful so as to be enforceable under the provisions of O. 23, r. 3. Similarly, a receiver being an officer of the Court, the Court alone is to determine his remuneration, and the parties cannot by any act of theirs add to, or derogate from, the functions of the Court without its authority. A promise, therefore, to pay the salary of a receiver without leave from the Court, even if unconditional, being in contravention of the law, is not binding on the promisor. But an agreement providing for remuneration to be paid to an executor not out of the assets of the testator, but from the pocket of a third person, is neither forbidden by the Administrator-General's Act, 1874, S. 56, nor is it one which if permitted would defeat the provisions of that Act, nor is it against public policy.

"Fraudulent."---- A sale of immovable property pending a suit against the vendors to recover a debt is not invalid merely because the motive of the vendors may have been to prevent the land from being attached and sold in execution. In such a case the only question is whether the sale was a real transfer of the title to the land for a fair money consideration. The motive of the vendors to defeat the execution of any decree that may be passed against them is immaterial. In this connection may be noted the provisions of S. 53 of the Transfer of Property Act, 1882. That section provides inter alia that "every transfer of immovable property made with intent to defeat or delay the creditors of the transferor is voidable at the option of any person so defeated or delayed," but that "nothing in this section contained shall impair the rights of any transferee in good faith and for consideration." Such a transfer is not illegal, for the section merely declares that it shall be voidable at the option of the party affected by the transfer. Where the object of an agreement between A and B was to obtain a contract from the Commissariat Department for the benefit of both, which could not be obtained for both of them without practising fraud on the Department, it was held that the object of the agreement was fraudulent, and that the agreement was therefore void. (https://www.paksearch.com/Government/CORPORATE/Contract/E65.htm) But an agreement between A and B to purchase property at an auction sale jointly, and not to bid against each other, is perfectly lawful. (https://www.paksearch.com/Government/CORPORATE/Contract/E66.htm)

"Injury to the person or property of another."----The consideration or object of an agreement is unlawful when it involves or implies injury to the person or properly of another. A mortgage-bond, whereby a person who is entitled to a moiety only of certain property mortgages the whole of that property, is not void under this section as to the moiety belonging to him, merely because he purports to mortgage the other moiety also not belonging to him. (https://www.paksearch.com/Government/CORPORATE/Contract/E67.htm) A bond which compels the executant to daily attendance and manual labour until a certain sum is repaid in a certain month and penalizes default with overwhelming interest is unlawful and void, "such a condition," the Court said, "is indistinguishable from slavery, and such a contract is, in our opinion, opposed to public policy and not enforeceable." (https://www.paksearch.com/Government/CORPORATE/Contract/E68.htm)

"Immoral."---This means "immoral" according to the standards of morality approved by the Courts and accordingly a settlement in consideration of concubinage was held to be void, notwithstanding that it was made by a member of a community among whom concubinage carried no stigma. (https://www.paksearch.com/Government/CORPORATE/Contract/E69.htm)

A landlord cannot recover the rent of lodgings knowingly let to a prostitute who carries on her vocation there. Otherwise, if the landlord did not know that the lodgings were required for prostitution. (https://www.paksearch.com/Government/CORPORATE/Contract/E70.htm) Similarly, money lent to a prostitute expressly to enable her to carry on her trade cannot be receivered. (https://www.paksearch.com/Government/CORPORATE/Contract/E71.htm)

Trading with enemy.----Agreement alleged to amount to trading with an enemy or otherwise to operate in the enemy's favour in time of war do not appear to have come before the Courts of British India before the war of 1914. It is long settled law that all trade with public enemies without licence of the Crown is unlawful. "The King's subjects cannot trade with an alien enemy, i.e., a person owing allegiance to a Government at war with the King, without the King's licence". (https://www.paksearch.com/Government/CORPORATE/Contract/E72.htm) This includes shipping a cargo from an enemy's port even in a neutral vessel. As a consequence of this, "no action can be maintained against an insurer of an enemy's goods or ships against capture by the British Government. If the performance of a contract made in time of peace is rendered unlawful by the outbreak of war, the obligation of the contract is suspended or dissolved according as the intention of the parties can or cannot be substantially carried out by postponing the performance till the end of the hostilities. In such a case a contracting party is not bound to perform a part of his undertaking which remains possible and lawful in itself, but would be useless without the rest. The recent development of cases of this class if dealt with under S. 56 below. The rules under this head become applicable only when an actual state of war exists. They cannot be made to relate back to a time before the war, though war may have been apprehended. A contract of insurance made before war cannot be vitiated, as regards a loss by seizure also before any act of public hostility, by the fact that war did break out shortly afterwards. (https://www.paksearch.com/Government/CORPORATE/Contract/E73.htm)

During the first and second Great Wars these principles have been confirmed and in some directions developed; and the matter has been the subject of special legislation, always growing more drastic, passed after the outbreak of hostilities. One question found to need further definition was who is an enemy for the purpose of the rule, and especially how the friendly or hostile character of an incorporated company is to be tested. The seat of a man’s business is of more importance than his domicile in the technical sense or even nationality (for an enemy subject allowed to remain here under the protection of the State is not a commercial enemy, and enemy subjects residing in friendly countries need not be); and in the case of a corporation the jurisdiction in which it is registered does not conclusively determine its character, nor yet the nationality of its individual shareholders, and it must be considered by whom and in what interest its affairs are in fact controlled. (https://www.paksearch.com/Government/CORPORATE/Contract/E74.htm)

Stifling prosecution.---Agreements for stifling prosecutions are a well-known class of those which the Courts refuse to enforce on this ground. The principle is "that you shall not make a trade of a felony"; or, as it was expressed in a Calcutta case, "no Court of law can countenance or give effect to an agreement which attempts to take the administration of law out of the hands of the judges and put it in the hands of private individuals." (https://www.paksearch.com/Government/CORPORATE/Contract/E75.htm)

A compromise of proceedings which are criminal only in form, and involve only private rights, may be lawful. (https://www.paksearch.com/Government/CORPORATE/Contract/E76.htm) This perhaps is of no importance in Indian practice, where we have a statutory list of compoundable offences. "The criminal law of this country makes a difference between various classes of offences. With regard to some, it allows the parties 10 come to an agreement and either not to take proceedings or to drop the proceedings after institution in a few instances even without the leave of the Court, and, in other instance, with the leave of the Court. But there are other instances which cannot be compounded or arranged between the parties. If the offence [is] compoundable and [can] be settled in or out of Court without the leave of the Court, there seems no reason why [a compromise] should be regarded as forbidden by law or as against public policy, the policy of the criminal procedure being to allow such a compromise in such cases". Thus where A agreed to execute a kabala of certain lands in favour of B in consideration of B's abstaining from taking criminal proceedings against A with respect to an offence of simple assault which is compoundable, it was held that the contract was not against public policy and that the same could be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/E77.htm) Where the offence is compoundable with leave of the Court, and such leave is obtained, the composition cannot fall within the mischief of the section. (https://www.paksearch.com/Government/CORPORATE/Contract/E78.htm) But where the offence is non-compoundable, an agreement made for the purpose of compounding it or stifling a prosecution in respect of it is unenforceable and cannot be sued on. (https://www.paksearch.com/Government/CORPORATE/Contract/E79.htm) Even if the prosecution is proceeded with by the authorities, in spite of the agreement to withdraw it, the agreement is void. (https://www.paksearch.com/Government/CORPORATE/Contract/E80.htm)

There is no rule of law to forbid the purchase of property of which the title is or may be disputed, but the law does not, therefore, sanction mere speculative traffic in rights of action. To which class a given transaction belongs, in a case where doubt is at first sight possible, seems to be a question of fact rather than of law.

In a suit to recover money for financing litigation the burden is on the plaintiff to prove that the litigation is just and the agreement to finance it just and equitable. (https://www.paksearch.com/Government/CORPORATE/Contract/E81.htm)

Agreements between legal practitioners subject to the Legal Practitioners Act, and their clients making the remuneration of the legal practitioner dependent to any extent whatever on the result of the case in which he is retained arc illegal as being opposed to public policy. (https://www.paksearch.com/Government/CORPORATE/Contract/E82.htm)

Interference with course of justice.---It needs no authority to show that any agreement for the purpose or to the effect of using improper influence of any kind with judges or officers of justice is void. Various agreements not open to objection on the ground of champerty, nor always obviously wrong in themselves, have been held void as attempting to interfere with the powers and discretion of the regular Courts in administering justice. Thus an agreement whereby one person agreed to assist another in carrying out litigation for the purpose of delaying execution of a decree was held to be unenforceable. So much of this doctrine as it was thought proper to preserve in India will be found in S. 28.

Marriage brocage contracts.---Agreements to procure marriages for reward are undoubtedly void by the common law, on the ground that marriage ought to proceed, if not from mutual affection, at least from the free and deliberate decision of the parties with an unbiassed view to their welfare.

It has been held in the Punjab that a family arrangement of inter-marriages of sons and daughters of various families known as bil mawaza amongst persons of the same class, by which the family A gives a girl to be taken as a wife on equal terms into a family B, and a girl of the family B is at the same time given as a wife into family A, stands on a totally different footing from what is really a sale of the girl, and is not therefore void as opposed to public policy. Where a girl, therefore, of a family A is given as a wife in family B in virtue of such an arrangement, but family B refuses to give a boy of the family as a husband in family A, a suit will lie for damages for breach of the contract. But since such arrangements are not held in very high repute, the Court will not award heavy damages. (https://www.paksearch.com/Government/CORPORATE/Contract/E83.htm)

Agreements tending to create interest against duty.---One of the reasons suggested for not enforcing agreements to reward parents for giving their children in marriage is that such agreements tend to a conflict of interest with duty. The same principle is applied by the Common Law to dealings of agents and other persons in similar fiduciary positions with third persons. (https://www.paksearch.com/Government/CORPORATE/Contract/E84.htm) An agent must not deal in the matter of the agency on his own account without his principal's knowledge. In the present Act the rules on this head are embodied in the chapter on Agency, and will accordingly be considered in that place. Certain rules which we shall find in the chapter on Indemnity and Guarantee rest on similar grounds of equity. There are conflicting opinions as to the legality of an agreement by a Patwari or Kanungo in Government service for the purchase of land situated within his circle or for the acquisition of any other interest therein. Allahabad decisions that such an agreement created an interest which would conflict with his duty have been overruled by the Bench of the same Court but the Lahore High Court does not follow this, at any rate as to agricultural land. (https://www.paksearch.com/Government/CORPORATE/Contract/E85.htm)

Agreements tending to create monopolies.---Agreements having for their object the creation of monopolies are void as opposed to public policy. (https://www.paksearch.com/Government/CORPORATE/Contract/E86.htm)

Agreement by client to remunerate his pleader's clerk.---An agreement by which a litigant binds himself to pay a sum of money to his pleader's clerk for giving special attention to his legal business which the pleader is bound to see to in consideration of his fee is opposed to public policy, and consequently cannot be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/E87.htm)

Agreement not to bid.---An agreement between persons not to bid against one another at an auction sale is not necessarily unlawful (https://www.paksearch.com/Government/CORPORATE/Contract/E88.htm), but it may be so if the purpose is to defraud a third party. (https://www.paksearch.com/Government/CORPORATE/Contract/E89.htm)

Agreement---Consideration of agreement was a compromise of a criminal case involving non-compoundable offence---Such agreement being void and against public policy, held, was clearly hit by S. 23, Contract Act. 1872. (https://www.paksearch.com/Government/CORPORATE/Contract/E90.htm)

Provision of section not attracted to an agreement to sell land surrendered under M.L.R. No. 64 as such agreement not prohibited by law. (https://www.paksearch.com/Government/CORPORATE/Contract/E91.htm)

Sale by transferee under Settlement Scheme No. 1---Sale made contingent upon grant of proprietary rights---Held, terms of agreement make it clear that parties never intended to violate restriction under Settlement Scheme No. 1 and, therefore, contract was neither void nor against public policy. (https://www.paksearch.com/Government/CORPORATE/Contract/E92.htm)

S. 23 Read with S. 73-A, Sind Land Revenue Code (V of 1879)---Agreement forbidden by law---Grantee of Government land on temporary basis later granted land on permanent basis on condition that he may not without permission in writing of Revenue Officer, lease, mortgage, sell or encumber land before paying full price---Parties during tenure of grant on temporary basis executing agreement whereby grantee agreed to give half of land to appellant upon certain conditions---Agreement challenged as void being in breach of conditions of grant---Agreement executed long before land granted to grantee on permanent basis and grantee rescinding contract alleging failure of appellant to perform his part of contract---Held, grantee not party to any illegal contract nor took advantage of his own wrong. (https://www.paksearch.com/Government/CORPORATE/Contract/E93.htm)

Contract limiting period of limitation for reference to arbitration---Not void---Contracts extending period of limitation are void. A plain reading of section 3 of the Limitation Act and section 23 of the Contract Act will show that an agreement to enhance the period of limitation or a promise by the defendant not to raise the plea of limitation is in effect a covenant to defeat the provisions of the Limitation Act. It will be contracting oneself out of the statute of limitation and such agreement will be void. There is, however, a marked distinction between a condition which shortens or limits the time within which a suit may be brought. There is nothing in the above provisions to justify the inference that a stipulation allowing curtailment of period of limitation in an agreement is void. (https://www.paksearch.com/Government/CORPORATE/Contract/E94.htm)

Illegality or invalidity of contract---How to be determined by courts?---Where an action is brought on contract which is ex-facie illegal, court will decline to enforce the contract irrespective of whether illegality is pleaded or not but where question of illegality depends upon surrounding circumstances, as a general rule, court will not entertain the question unless it is raised in pleadings. (https://www.paksearch.com/Government/CORPORATE/Contract/E95.htm)

Agreement to sell land---Mentioning of deflated price of defraud Government---Validity of agreement---Contention that in order to save taxes deflated sale price of Rs. 50,000 instead of Rs. 68,000 agreed upon by parties, has been shown in agreement which means to defraud Government, and as such entire agreement is void, held, not correct---Portion of agreement mentioning lesser amount can be severed from main agreement to carry out sale of Rs. 68,000 which being legal can be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/E96.htm)

Poor litigants financed by another person---Suit is not champertous. The mere fact that plaintiffs were poor people who were being financed by others would not prove that the suit is champertous. (https://www.paksearch.com/Government/CORPORATE/Contract/E97.htm)

Transaction evading bye-laws of Co-operative Society---No contravention of law---Transaction is not unlawful. Where a person was not entitled to have a plot of land under a Co-operative Housing Scheme but his wife was so entitled and he obtained the plot of land benami in her name. This was challenged as an unlawful and void transaction.

Held: Where rules arc merely domestic matters, a transaction which has the object of evading such rules, cannot be treated as unlawful or fraudulent. Therefore the allotment was not void. (https://www.paksearch.com/Government/CORPORATE/Contract/E98_99.htm)

Contract of printing subject to authentication of declaration of printer---Declaration not authenticated---Contract is illegal---No suit lies for damages for breach of contract. Where the contract to print and bind, etc. certain books was subject to the condition that the printer would obtain a declaration as a printer before performing the contract but no such declaration could be obtained by him. Held: The contract became illegal on the refusal of declaration to the printer, therefore, no suit for damages for breach of contract was competent. (https://www.paksearch.com/Government/CORPORATE/Contract/F1.htm)

Contract contravening Foreign Exchange Regulation Act---'Ex post facto' permission to perform contract possible---Contract is not illegal. Where a contract when entered into was in contravention of the Foreign Exchange Regulation Act, 1947 but ex post facto permission could be granted in the matter of made contrary to its provisions cannot be said to defeat the law by reason of that inconsistency only. (https://www.paksearch.com/Government/CORPORATE/Contract/F2.htm)

Contract void at inception as contravening statute---Statute subsequently repealed---Contract does not become valid. Where the transaction under the contract took place without prior sanction as required by law, and was therefore void. Subsequently the law requiring the sanction was repealed and sanction was not required to be obtained from Collector. Held: The change in law does not give retrospective validity to the contract and the contract remains void. (https://www.paksearch.com/Government/CORPORATE/Contract/F3.htm)

Contract legal at inception may become illegal at time of performance. (https://www.paksearch.com/Government/CORPORATE/Contract/F4.htm)

Statutory prohibition of contract and contract opposed to public policy---Distinction between. After a legal prohibition is discovered, its application to a given case is comparatively simple because a prohibited contract is illegal and there is no need to see what acts as distinguished from contracts,. the statute prohibits, nor is it necessary to see the intention of the parties. As against this the problem in respect of illegally at common law on the ground of public policy is the discovery of injuriousness to society. On the one hand a contract may be bad on the face of it and on the other hand it may be unobjectionable as it is formed, yet it may enjoin the doing of acts which may be injurious or illegal. Thus common law relating 1o prohibited contracts deal with the prohibition of acts and statutory law relating to prohibited contract deals with the prohibition of contracts only. (https://www.paksearch.com/Government/CORPORATE/Contract/F5.htm)

Compromise based on fraud and misrepresentation---Unlawful and void. Held: The orders passed by consent on the ejectment application in the course of proceedings before the Rent Controller resulting in compromise between the parties was due to fraud and misrepresentation on the part of the appellant upon the respondent as well as the Court, the result being that the compromise was not a lawful compromise and could not have been acted upon in any manner. (https://www.paksearch.com/Government/CORPORATE/Contract/F6.htm)

Fraud---May be inferred from circumstances---Nature of proof required. Fraud can be proved by direct evidence and it may also be inferred from circumstances. It is well settled that where fraud is to be inferred from the circumstances and is not directly proved, those circumstances must be such as to exclude any other reasonable possibility. Where the evidence is direct, the finding of fraud may be a pure finding of fact but where there is no direct evidence but only an inference, then the finding involves the legal question as to whether the circumstances are such that the necessary inference can legally be derived. The criterion applicable to circumstantial evidence in order to draw an inference of fraud is that the circumstances must exclude every reasonable possibility except that of fraud. (https://www.paksearch.com/Government/CORPORATE/Contract/F7.htm)

Limitation for suit on branch of contract---Shorter than statutory period prescribed by contract---Term void---Statutory limitation applies. Where it was provided in the contract that a suit for its breach on rescission must be brought within three months of such date. Held: The clause in contract making such provision was void and a suit could be brought within the statutory period of three years from the date of rescission of the contract. (https://www.paksearch.com/Government/CORPORATE/Contract/F8.htm)

S. 23----Agreement by husband to pay Rs. 2,000 as damages to wife if he violated terms of marriage agreement---Terms violated---Damages decreed. Where at the time of marriage the husband entered into an agreement with the wife to say that if he violated any of the terms stated in the agreement he would pay Rs. 2,000 as damages. Held: That at least some of the conditions laid down in the agreement were enforceable in law and as such the plaintiff was entitled to claim a reasonable compensation for breach of those conditions of the agreement. Damages of Rs. 2,000 were rightly decreed. (https://www.paksearch.com/Government/CORPORATE/Contract/F9.htm)

Agent exercising personal influence to get contract from Government---Contract not void in the absence of proof of illegality of contract. The mere fact that an agent is influential is not enough to prove the illegality of performance unless some other facts to prove that his conduct was illegal are also established. (https://www.paksearch.com/Government/CORPORATE/Contract/F10.htm)

Contract for payment of consideration for winning favour of Government officers---Contract is void being opposed to public policy. Where a person entered into a contract with a business firm whereunder he was to receive money for securing a contract for them to export rice to a foreign country by the use of his influence with Government officers. On his seeking to enforce the contract. Held: It has been the rule that any contract is illegal which tends to corruption in the administration of the affairs of the nation. A familiar example of a transaction offensive to this principle is a contract for the buying, selling or procuring of favour from public officers. It is obvious that all such contracts must have a material influence to diminish the respectability, responsibility and purity of public officers and to introduce a system of official patronage, corruption and deceit wholly at war with the public interest. (https://www.paksearch.com/Government/CORPORATE/Contract/F11.htm)

Public policy---Question of law and facts---How question may be decided. The question whether a contract or its performance is or is not against public policy is a mixed question of law and fact. Moreover, the Courts may deduce pleas when they have to decide pure questions of law but they are not free to make deductions which may be mere surmises, logically disputable, unwarranted or imaginary allegations of fact against any party. (https://www.paksearch.com/Government/CORPORATE/Contract/F12.htm)

Compromise in maintenance suit---Admission by woman to be not legally wedded wife of defendant---Status of son of woman and his rights injured by compromise---Compromise is void. Where a suit for maintenance by a woman against her defendant husband was compromised, and in the compromise petition she admitted that she was not legally married wife of the defendant. The unvoidable consequence of this admission in the compromise petition which formed part of the decree was that the son would be reduced to the status of an illegitimate son. It clearly involved injury to his status and right to maintenance and also future inheritance. That being so, the terms of the contract would come within the ambit of section 23, for they involve or imply injury to the person and property of the minor boy. Such an agreement is unlawful and it is clearly laid down that every agreement of which the object is unlawful is void. (https://www.paksearch.com/Government/CORPORATE/Contract/F13.htm)

Agreement of sale made in the course of criminal prosecution---Prosecution not continued after agreement---Agreement is void. Held: There were two cases already pending and were fixed for hearing. So, the very fact that a case was initiated by the plaintiff under section 406, P.P.C. goes to show that the defendant was in a very difficult position when the Magistrate was dealing with the three cases and was suggesting for a compromise and as it appears that terms of agreement were settled on the same day and the case under section 406, P.P.C. remained pending till 5 days thereafter when it was dismissed for non-prosecution. This is sufficient to hold that this contract is hit by section 23 of the Contract Act as the consideration or object of the agreement is unlawful. (https://www.paksearch.com/Government/CORPORATE/Contract/F21.htm)

Contract debarring person from instituting criminal proceedings---Other legal remedies not barred---Contract is not void for being opposed to public policy. Held: If a party considering himself aggrieved, is deprived of seeking his remedy in a Court of justice, such agreement whether express or implied must be considered as being against public policy. But an agreement express or implied which does not absolutely deprive an aggrieved person of seeking redress from a Court of justice but only debars him from launching criminal proceedings cannot be considered as being necessarily against public policy. (https://www.paksearch.com/Government/CORPORATE/Contract/F15.htm)

Criminal proceeding pending---Accused executing document in favour of complainant---How validity of document is determined---Document is valid if it does not result in compromising the criminal prosecution. Held: The most important question in this behalf is ;has the criminal case been settled as a result of and because of the impugned document? If it is so, it would be hit by the provisions of section 23, if not, it would not come within the mischief of the said section, notwithstanding the fact that it came into existence during the pendency of the criminal proceeding. The execution of the document at a time when the suit was pending may amount to a strong piece of circumstantial evidence tending to show that the criminal proceeding was compromised as a result thereof, but it is no more than a piece of evidence which may be rebutted. The Court would look to the other evidence and attending circumstances in order to arrive at a finding whether the execution of the document was the consideration for a compromise of the said criminal proceeding. If the document is merely executed during the pendency of such a criminal proceeding and if it is not the basis of compounding the criminal proceeding, it would not be hit by section 23 of the said Act. (https://www.paksearch.com/Government/CORPORATE/Contract/F16.htm)

Agreement partly void---Cannot be enforced by changing part of it---May be held void as a whole if void part cannot be separated from good parts. Held: When you cannot sever the illegal from the legal part of a covenant, this contract is altogether void, but when you can sever them, whether the illegality be created by statute or common law, you may reject the bad part and retain the good. Where in reality there is only one covenant the Court will not rewrite it, to separate it into two covenants. Thus where grantee of State land entered into an agreement with another person stipulating to transfer his tenancy rights in State land to him and also to transfer proprietary rights afire acquisition of the same Stipulation with regard to transfer of proprietary rights was not separately enforceable. Such agreement as a whole, was bad being in violation of S. 19, Colonization of Government Lands (Punjab) Act. (https://www.paksearch.com/Government/CORPORATE/Contract/F17.htm)

Contract requiring services of plaintiff to be utilized for bringing undue personal influence to bear upon authorities competent to accept tender and also for payment of bribe and commission---Hit by S. 23---Such contract is likely to be struck off as opposed to public policy---No Court can help in performance of such a contract. (https://www.paksearch.com/Government/CORPORATE/Contract/F18.htm)

Burden of proof---Person alleging illegal consideration must prove the assertion---When question must be raised. Section 23 of the Contract Act declares the consideration in each of the cases mentioned in it to be unlawful and enacts that every agreement of which the consideration is unlawful is void. It is quite clear from the wording of section 23 of Contract Act, that there is a presumption of legality about every consideration. The law presumes against illegality and the burden of establishing illegality is on the person who asserts it. Therefore where the defendant does not assert the illegality in the written statement and does not lead any evidence on the point, he can at the late stage of appeal before the High Court raise the question for the first time. (https://www.paksearch.com/Government/CORPORATE/Contract/F19.htm)

Bond obtained on consideration of dropping criminal prosecution---Complaint had been filed at the time---Agreement illegal. Where a bond was obtained from the defendant in consideration of dropping a criminal complaint against him, when complaint had been lodged though no process had been issued against the defendant.

Held:When a complaint is lodged, criminal proceedings against the accused may start only when process is issued against him, yet it could not be said that what a complainant had done by lodging a criminal complaint was not an initiation of criminal proceedings. The consideration for the bond, in the case, was, therefore, unlawful and void. (https://www.paksearch.com/Government/CORPORATE/Contract/F20.htm)

Contract becoming unenforceable by amendment in law---Contract is void. Held: The plaintiff's contract of lease, though lawful at the time when it was made, has been rendered impossible for performance by the operation of section 75-A of the Act over which the parties to the contract have no control. The said contract cannot be performed or specifically enforced except in violation of the absolute prohibition contained in section 75-A; the performance of that contract has, therefore, been rendered unlawful by the said section. Thus, the doctrine of frustration coming within the purview of the second paragraph of section 56 of the Contract Act comes into play in this case with the result that the plaintiffs contract of leave has become void and unenforceable. (https://www.paksearch.com/Government/CORPORATE/Contract/F21.htm)

Contract in contravention of statute---Void and unenforceable. Where a condition is attached to a licence granted under the Act or an order passed thereunder and its contravention is made punishable, it becomes clear that any agreement in violation of the condition would be void and unenforceable. (https://www.paksearch.com/Government/CORPORATE/Contract/F22.htm)

Contract acted upon in illegal manner though it could be performed in a legal manner---S. 23 is not attracted. Where a contract was performed in such a way as to contravene the provisions of section 4 (2) (5) (1) (a) (c) and 21 of the Foreign Exchange Regulation Act, and it was contended that the contract had become void on that ground.

Held: The Foreign Exchange Regulation Act does not forbid the making of a contract which may contemplate doing a thing which is contrary to the provisions of the Foreign Exchange Regulation Act, for that thing can still be done by ex post facto permission of the State Bank of Pakistan. The scheme of the Foreign Exchange Regulation Act, therefore, is not to forbid the making of a contract but merely to insist that the contract shall be performed in a particular manner, namely, by taking the necessary permission of the competent authority. It cannot, therefore, in the circumstances be said that a contract which violates any of the terms of the Foreign Exchange Regulation Act is ex facie or ab initio void or comes within the mischief of a contract prohibited by section 23 of the Contract Act. Moreover, there is nothing in the contract itself to show that the contract had of necessity to be performed in an illegal manner or in a manner which offended the provisions of the Foreign Exchange Regulation Act. The contract was to be performed in partnership business upon the basis of a permit obtained from Government for the export of rice at a particular price and to import foreign goods of equivalent value into Pakistan. The price fixed by Government was, no doubt, high but it might well have been anticipated that under the barter scheme the foreign buyer would be able to adjust this loss against the price of the imported goods and the local trader would be more than reimbursed by the huge profit that he would make by the sale of the imported commodity. In such a transaction no illegality of any kind would have been involved. The mere fact, therefore, that the partners in performing the contract entered into, adopted a method, which was not according to the provisions of the Foreign Exchange Regulation Act, would not determine the validity or invalidity of the contract itself. (https://www.paksearch.com/Government/CORPORATE/Contract/F23.htm)

Criminal proceeding pending---Accused executing document in favour of complainant---flow validity of document is determined---Document is valid if it does not result in compromising the criminal prosecution. Held: The most important question in this behalf is; has the criminal case been settled as a result of and because of the impugned document? If it is so, it would be hit by the provisions of section 23, if not, it would not come within the mischief of the said section, notwithstanding the fact that it came into existence during the pendency of the criminal proceeding. The execution of the document at a time when the suit was pending may amount to a strong piece of circumstantial evidence tending to show that the criminal proceedings was compromised as a result thereof, but it is no more than a piece of evidence which may be rebutted. The Court would look to the other evidence and attending circumstances in order to arrive at a finding whether the execution of the document was the consideration for a compromise of the said criminal proceeding. If the document is merely executed during the pendency of such a criminal proceeding and if it is not the basis of compounding the criminal proceeding, it would not be hit by section 23 of the said Act. (https://www.paksearch.com/Government/CORPORATE/Contract/F24.htm)

Dropping of non-compoundable case---Consideration for contract---contract illegal. A contract the consideration for which is the dropping of a criminal case about an offence which is not compoundable is unlawful and, therefore, hit by section 23 of the Contract Act, 1872. (https://www.paksearch.com/Government/CORPORATE/Contract/F25.htm)

Illegal contract---Made basis of arbitration---When legality of contract may be challenged. In those cases where ex facie the contract between the parties is illegal and void it is open to a party to raise this objection at any stage of the arbitration proceedings, and particularly before the Court when an award is sought to be made the rule of the Court for setting it aside on the ground that it was based on an illegal contract. But in a case where the question involves the consideration of evidence led by the parties and then to decide whether the case of one party is correct or the case of other party is correct the position is entirely different. (https://www.paksearch.com/Government/CORPORATE/Contract/F26.htm)

Mortgage bond obtained by creditor under threat of criminal prosecution---Object of agreement is not to stiffle prosecution---Bond is valid. Held; stiffling of prosecution is distinguishable from the lawful compounding of a compoundable offence. If the offence is not compoundable, compounding of it must be held to be illegal and opposed to public policy. On the other hand there is nothing to prevent a creditor from taking a security from his debtor for the payment of a debt due to him, even if the debtor is induced to give the security by a threat of criminal case, so long as there is no agreement not to prosecute. In the case, neither the recital of the mortgage bond nor the evidence led in the case showed that non-prosecution or stiffling of the prosecution case was the consideration or object of the bond. The motive for execution of the bond might have been withdrawal or non-prosecution of criminal case, but there is a good deal of difference between the motive for the said consideration and the object of the agreement. It is absolutely necessary to keep this distinction in view and it is all the more necessary in a case where there is a civil liability already existing which is discharged or remitted by the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/F27.htm)

Offence compoundable with permission of Court---Compounded without such permission---Agreement amounts to stifling prosecution and is not enforceable. If a criminal offence is compoundable and can be settled in or out of the Court without the leave of the Court, a compromise entered in such cases would not be regarded as forbidden by law or against public policy, the policy of the criminal procedure being to allow compromise in such cases. But if the offence is compoundable with the leave of the Court and such leave has not been obtained, the compromise entered in such circumstance will fall within the mischief of section 23 of the Contract Act, and is therefore void. It cannot be enforced. (https://www.paksearch.com/Government/CORPORATE/Contract/F28.htm)

Stifling prosecution and lawful compounding of offences---Distinction between---Security for debt obtained under threat of criminal prosecution---Agreement not void: Stifling of prosecution is distinguishable from the lawful compounding of a compoundable offence. If the offence is not compoundable, compounding of it must be held to be illegal and opposed to public policy. On the other hand there is nothing to prevent a creditor from taking a security from his debtor for the payment of a debt due to him, even if the debtor is induced to give the security by a threat of criminal case, so long as there is no agreement not to prosecute. In the case, neither the recital of the mortgage bond nor the evidence led in the case showed that non-prosecution or stifling of the prosecution case was the consideration or object of the bond. The motive for execution of the bond might have been withdrawal or non-prosecution of criminal case, but there is a good deal of difference between the motive for the said consideration and the object of the agreement. It is absolutely necessary to keep this distinction in view and it is all the more necessary in a case where there is a civil liability already existing which is discharged or remitted by the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/F29.htm)

Stolen goods---Contract with regard to---Illegal and void. Where a bond was executed in favour of the owner admitted the sale of stolen gold and it was promised that if the thief who had sold the gold to the executant did not appear by a certain date, he would return the gold to the owner. It was held that such an agreement or writing being opposed to public policy would be hit by illustration (h) Of section 23 of the Contract Act inasmuch as it would have the effect of stifling prosecution of a person accused of a theft which is an offence against society as a whole. (https://www.paksearch.com/Government/CORPORATE/Contract/F30.htm)

Sanction by Government made condition precedent to sale---Agreement of sale is not within the mischief of S. 23. If under the law there is some condition precedent attached to the validity of a transfer it is open to the parties to enter into an agreement subject to compliance with the condition precedent. The attack on the agreement for sale on the ground of public policy could only succeed if it was shown that the intention of the agreement was to defeat a law. If the parties that enter into an agreement for sale contemplate, only a sale with the requisite sanction they are not making any effort to defeat the law. (https://www.paksearch.com/Government/CORPORATE/Contract/F31.htm)

Agreement to recover property---It may be enforced under Specific Relief Act, S. 23 against representative-in-interest of a party to the agreement. Since an agreement which is enforceable in law is a contract, and an agreement to reconvey property is enforceable by law, it is clearly a contract within the meaning of section 23 of the Specific Relief Act. So that its specific performance may be obtained against a representative-in-interest. (https://www.paksearch.com/Government/CORPORATE/Contract/F32.htm)

Application of---Should not be used to restrict freedom of contracts. Public policy does not comprehend, as often popularly imagined, all the political policies from time to time of the Government, nor does it render void agreements merely because they tend to defeat some purpose ascribed to the law which is neither apparently nor necessarily implied in the language of the enactment. (https://www.paksearch.com/Government/CORPORATE/Contract/F33.htm)

Defence based on illegal transaction---It should be refused to be considered in all eases. The plaintiff sued the defendant for a sum of Rs. 1500 which we allege had been paid to him by cheque as a loan. The defendant alleged that he was a Meat Inspector in the Municipal Committee, and having been served with a notice that his services were to be be terminated had purchased gram, Khal, etc., for the purpose of running a shop. The Municipal Committee ultimately decided not to terminate his services and he was left with the gram, etc., that he had purchased. He approached his officers in the committee and they advised him to sell the goods to the committee on a nominal profit. The committee did stand in need of purchasing the commodities that were with him. Tenders were invited by the committee and he also submitted a tender in the name of the plaintiff, as he being a servant of the committee, could not do so in his own name. The tender was accepted, the goods were supplied and the plaintiff received a sum of Rs. 1632 from the committee in connection with the contract. Rupees 132 had been received by the defendant in cash and for the balance the plaintiff had given the cheque which he had made the basis of the suit.

It was contended that as the defence was based on an illegal transaction the Court should not consider it.

Held: This is no more than a statement of the principle contained in the well known maxim, "manum ex turpi causa non oritur actio." Which means that no Court will "allow itself to be made the instrument of enforcing an obligation arising out of a contract or transaction that is illegal." If a party "requires from the illegal transaction to establish his case" the Court will not entertain the claim.

With respect to such maxims it should be understood in the first place that they are not rules of law and Courts are not bound by them. They represent consideration of justice and public policy which may in the circumstances of a case be over ridden by other similar considerations and their applicability is always subject to what appears to the Court to be the equities of a case. (https://www.paksearch.com/Government/CORPORATE/Contract/F34.htm)

Divorce---Divorce granted and other arrangements made with the party including withdrawal of criminal case---Contract invalid but divorce would be effective. The husband made a complaint against his wife under section 380 and 317 P.P.C. A compromise was affected by the parties according to which the husband granted divorce to his wife and withdrew the case against her for some consideration. He later on brought a suit for restitution of conjugal rights on the plea that the divorce being based on an unlawful agreement was ineffective.

Held:·When the parties to a contract are themselves in pari delicto neither of them is entitled to ask relief from a Court of law. The Court will not come to the aid of either party to retrieve his position. (https://www.paksearch.com/Government/CORPORATE/Contract/F35.htm)

Jurisdiction---Contract ousting jurisdiction of one of the two Courts---Not against public policy. An agreement between parties to the contract to the effect that a suit concerning disputes arising between them on the basis of that contract should be instituted in one only out of two competent Courts having territorial jurisdiction over the subject-matter of that suit is valid and enforceable and is not void under S. 28. (https://www.paksearch.com/Government/CORPORATE/Contract/F36.htm)

Forfeiture clause---Contract between District Board and building contractor---Clause that if contractor tries to bribe the Engineer of the Board the price of work done will be forfeited-allegation of bribery without loss to Board---Forfeiture clause void. There was a contract between the District Board and a building Contractor according to which the building Contractor was to forfeit the amount due to him if he offered any bribe to the District Board Engineer. It was alleged that he offered such a bribe but the Engineer did not accept it and reported the matter to the Chairman of the Board. The Board suffered no loss.

Held: The clause under which the impugned order has been made is void being violative of section 73 of the Contract Act and opposed to public policy. Section 73 lays doen that when a contract has been broken, the party who suffers by such breach is entitled to receive compensation for any loss or damage caused to him thereby. Under clause 20 whether any loss has been suffered by the appellant or not, the contractor is to be penalised presumably to eliminate corruption among the officials of the appellant and to secure better quality of work, for instance, in the present case there is no allegation of any loss or damage suffered by the appellant, for the District Engineer did not accept the bribe and reported the matter to the Vice-Chairman the moment he saw the envelope containing notes of Rs. 300 lying on his table left there by plaintiff. The bribe having been refused, there was no question of District Engineer showing undue indulgence to the plaintiff at the expenses of the appellant. What then is the justification in law for confiscating the amount admittedly due to the respondent. (https://www.paksearch.com/Government/CORPORATE/Contract/F37.htm)

Stiffling prosecution---Consideration for contract illegal---Contract prohibited under S. 23. In order to determine whether the consideration of a document is prohibited by the section 23 of the Contract Act is to be seen whether the facts are that the contract came into existence, when a criminal prosecution was hanging on the head of the executant or the contract was entered into with the purpose of taking away the prosecution for a non-compoundable offence from the hands of the Crown Prosecution in their own hands. It would be legitimate to infer that in these circumstances, the consideration would be a consideration which is prohibited by section 23. (https://www.paksearch.com/Government/CORPORATE/Contract/F38.htm)

Public policy and morality---Nature of---Explained. Public policy and morality, referred to in S. 23 of the Contract Act, are by their very nature variable things and always an unsafe and treacherous ground for legal decision. The determination of what is or is not contrary to public policy or morality must necessarily depend upon the merits in each case and upon the stage of development of public opinion and morality of the community concerned as a whole. The Courts are, as such, very cautious in deciding this question and normally reluctant to invent new heads of public policy or to extend it beyond the classes of cases already covered by it.

Public policy does not comprehend, as is often popularly imagined, all the political policies from time to time of the Government, nor does it render void agreements merely because they tend to defeat some purpose ascribed to the law which is neither apparent nor necessarily implied in the language of the enactment. (https://www.paksearch.com/Government/CORPORATE/Contract/F39.htm)

Liability bond executed in return for suppression of criminal prosecution---Consideration unlawful---Bond void. When an accused undertakes to execute a liability bond in favour of the complainant in consideration of the latter withdrawing a criminal case against the former the bond so executed will be unlawful and the person in whose favour the bond has been executed will derive no benefit from it. (https://www.paksearch.com/Government/CORPORATE/Contract/F40.htm)

Lease of factory---Municipal Corporation holding that licence should be obtained for the factory---No proof that licence was required prior to the lease---Contract not void. The plaintiff took a factory on lease. It was later on held by the Municipal Corporation that a licence was necessary for running the factory. The plaintiffs contended that as the running of the factory was a continuing offence the lease of it was a void contract. But they did not prove that the taking out of licence was necessary before the lease was granted to them.

Held: that merely because after the lease the corporation authority held the operation of the factory as falling under section 218 (1) (f) City of Lahore Corporation Act (XV of 1941), rendering it necessary to take out a license, did not make the lease in its inception opposed to public policy. (https://www.paksearch.com/Government/CORPORATE/Contract/F41.htm)

Stiffling prosecution--Contract void---When an agreement is said to amount to stiffling of prosecution. It is against public policy to make a trade of felony or attempt to secure benefit by stiffling a prosecution or compromising an offence which is not compoundable in law and an agreement to that effect is wholly void. It will, therefor, e be an error of law to jump to the conclusion that the agreement is not hit by Section 23 of the Contract Act simply because it makes no mention of the criminal proceedings. To decide the question, the Court should not confine itself purely to the terms of the agreement, but will endeavour to draw its inference from the evidence, both oral and circumstantial.

If however, there is a bona fide civil dispute which the parties have decided to settle and there happended to be subsidiary proceedings in a Criminal Court, it would be contrary to public policy and to justice and equity to allow any person to escape his proper legal liabilities on the mere technical ground that there was some understanding that those criminal proceedings too would not be pressed to conclusion. (https://www.paksearch.com/Government/CORPORATE/Contract/F42.htm)

Agreement to sell old evacuee grant situate in Cantonment area---Agreement executed without prior sanction/permission of Central Government or of Cantonment Board---Documents and evidence on record making it absolutely clear that sanction/permission could be obtained by transferee even after sale---Contention that agreement was violative of S. 23 inasmuch as land vested in Central Government and sanction/permission was necessary before execution of agreement to sell---Contention repelled---High court upholding decretal of suit for specific performance of such agreement to sell and dismissing second appeal against judgments and decrees of two Courts below---Civil Procedure Code (V of 1908); S. 100, Specific Performance Act (I of 1877), Cantonments Act (II of 1924), S. 73 and Cantonment Lands Administration Rules, 1937, rule 27. (https://www.paksearch.com/Government/CORPORATE/Contract/F43.htm)

Agreement subject to compliance of law---Previous sanction of Collector required for sale---Sale, in violation/contravention of any provision of law, held, void but agreement to sell, subject to compliance of relevant law, legal and enforceable, provided legal requirement can be complied with. (https://www.paksearch.com/Government/CORPORATE/Contract/F44.htm)

Consideration of object of agreement is lawful unless Court regards same as immoral or opposed to public policy---Presumption of law in favour of legality of contract but public policy requires that Court should not ignore illegality brought to its attention and refuse to allow party to enforce agreement---Contract ex facie illegal, Court will not enforce same whether illegality is pleaded or not---Question of illegality depending upon surrounding circumstances will not be entertained unless raised by pleadings---Rule of evidence that governs proof of illegality whether contract illegal by statute or at common law. (https://www.paksearch.com/Government/CORPORATE/Contract/F45.htm)

Ss. 23 & 28 read with Carriers Act (III of 1865), Ss. 6, 8 & 10---Agreement Between parties---Validity of---Respondent firm consigned one bale of yarn under a Way Bill---Condition 15 of Way Bill provided, "no suit shall be against the firm in respect of any consignment without a claim made in writing in that behalf and preferred within 30 days from dale of booking or from date of arrival at destination by party concerned---Appellant carriers failed to deliver the goods to respondent according to appellant, though goods had arrived on next day, same were not taken delivery of and were found to be damaged as a result of cyclone when opened on May 20, 1969 in appellant's godown---Respondent gave a notice of claim to appellant on June 20, 1969 and thereafter instituted suits for recovery of various sums of money---Trial Court held that suits were barred by virtue of Condition 15----High Court held that Condition 15 of Way Bill was void in view of Section 10 of Carriers Act and section 34 of Contract Act---Held: Condition 15 of Way Bills is void in section 23 of Contract Act because its object was to defeat provisions of section 10 of Carriers Act---If under a particular bargain the rights of parties were extinguished that would not hit provisions of section 28 of Contract Act and as such would not be violative of section 23 of said Act---But as rights are not extinguished but only remedies are barred different consideration would apply---Carriers Act was passed, not only to limit liability of carriers, but also to declare liability of carriers---Any contract or bargain which seeks to defeat liability of carriers as enacted by law, would defeat provision of that Act---Under Condition 15 there was neither any extinguishment of liability nor contracting out of liability but a only special period of limitation of notice was provided other than section 10 of Carriers Act---If Condition 15 be permitted then it will defeat provisions of section 10 of Carriers Act---Even in a case where plaintiff was unaware of arrival of goods at destination or was unaware of a loss or damage plaintiff would not have any right to institute a suit if no claim was made and could not have been made within 30 days as stipulated in Condition 15 of Way Bill---In essence Condition 15 was to impose additional obligation upon owner or consignee because it stipulated giving of notice either from date of arrival of goods at destination which more oftener than not is not known to owner of goods, or from date of booking which again is useless because unless loss or damage occurs no liability arises. (https://www.paksearch.com/Government/CORPORATE/Contract/F46.htm)

Void Agreements
24. Agreements void, if considerations and objects unlawful in part. If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object, is unlawful, the agreement is void.

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

Entrie or divisible agreements.---This section is an obvious consequence of the general principle of S. 23. A promise made for an unlawful consideration cannot be enforced, and there is not any promise for a lawful consideration if there is anything illegal in a consideration which must be taken as a whole. On the other hand, it is well settled that if several distinct promises are made for one and the same lawful consideration, and one or more of them be such as the law will not enforce, that will not of itself prevent the rest from being enforceable. The test is whether a distinct consideration which is wholly lawful can be found for the promise called in question. The general rule is that, where you cannot sever the illegal from the legal part of a covenant, the contract is altogether void; but where you can sever them, whether the illegality be created by statute or by the common law, you may reject the bad part and retain the good. (https://www.paksearch.com/Government/CORPORATE/Contract/F47.htm) Further specific reference to English cases where the rule has been recognised would be of no practical use for Indian purposes.

Where a part of a consideration for an agreement was the withdrawal of a pending criminal charge of trespass and theft, it was held that the whole agreement was void. (https://www.paksearch.com/Government/CORPORATE/Contract/F48.htm) Upon the same principle a suit will not lie upon a promissory note for an amount which included an item in respect of lotteries prohibited by law, or an amount in respect of gambling losses. (https://www.paksearch.com/Government/CORPORATE/Contract/F49.htm) Where A promised to pay Rs. 50 per month to a married woman B, in consideration of B. living in adultery with A and acting as his house-keeper, it was held that the whole agreement was void, and B could not recover anything even for services rendered o A as house-keeper. (https://www.paksearch.com/Government/CORPORATE/Contract/F50.htm)

Similarly, a suit will not lie to recover money advanced as capital for the purposes of a partnership which is partly illegal: A holds a licence for the sale of opium and ganja. The ganja licence contains a condition prohibiting A from admitting partners into the ganja business without the permission of the Collector. No such condition is embodied in the opium licence. B, who is aware of the prohibition, enters into a partnership agreement with A, both in the opium and ganja business without the leave of the Collector and pays A, Rs, 500 as his share if the capital. Dispute arise between A and B, and B sues A for dissolution of partnership and for a refund of his Rs. 500. B is not entitled to recover Rs. 500 or any part thereof, one of the objects of the agreement being to carry on ganja business in partnership. In such a case "it is impossible to separate the contract or to say how much capital was advanced for the opium and how much for the ganja. (https://www.paksearch.com/Government/CORPORATE/Contract/F51.htm)

Different consequences, however, may follow when a part of the consideration or "object" of an agreement is not illegal, but merely void in the sense that it is not enforceable in law. In such a case actual performance of such part may be a good consideration, though a promise to perform it would not have been. Thus a bond passed by a judgment debtor to the holder of a decree against him in consideration of the latter refraining from execution of the decree is void under S. 257-A of the Civil Procedure Code, 1882, but not illegal. The decree-holder, therefore, on performing his part of the agreement, was held entitled to recover on the executed consideration, being in itself a voluntary lawful forbearance, though not upon the executory agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/F52.htm) If the promise to postpone execution of the decree were illegal the whole bond would be tainted with illegality, and the judgment creditor would then have no right to enforce payment of the bond. But when the parties themselves treat debts void as well as valid as a lump sum, the Court will regard the contract as an integral one, and wholly void. Thus where a judgment debtor agreed to pay in a lump sum interest not awarded by decree in addition to the sum decreed, without the sanction of the Court, it was held that, the promise to pay such interest being void under S. 257-A of the Civil Procedure Code, 1882, the whole agreement was void. (https://www.paksearch.com/Government/CORPORATE/Contract/F53.htm) In a Bombay case (https://www.paksearch.com/Government/CORPORATE/Contract/F54.htm) the Municipal Corporation agreed to give for a lump sum a contract for recovering tax from pilgrims and levying a toll on vehicles and animals. It was beyond the powers of the Municipality to grant the right to collect fee from pilgrims. The Court held that as the transaction was void and tainted with illegality, it could not be enforced. In a Nagpur case (https://www.paksearch.com/Government/CORPORATE/Contract/F55.htm) a share in a village was sold and the ex-proprietary rights in sir lands appertaining to that share were surrendered. Although the surrender of ex-proprietary rights was invalid, the sale of the share in the village was upheld as the transactions were separable. In a such for partnership accounts it was held that no part of the partnership agreement was separable for the rest and it was therefore void. In the case of a mortgage of a occupancy holding, the High Court at Allahabad, taking the view that the mortgage was illegal under the Agra Tenancy Act, 1901, refused to enforce the personal covenant to repay; but this decision seems open to question, the personal covenant being clearly separable. (https://www.paksearch.com/Government/CORPORATE/Contract/F56.htm) In a later case in the same Court it was held that the Act made the mortgage only inoperative and not illegal, and that no objection could be taken in any case to the enforcement of the personal covenant. (https://www.paksearch.com/Government/CORPORATE/Contract/F57.htm)

The provisions of this section must be distinguished from those of S. 52 below. In a Bengal case a Muhammandan husband agreed by a registered document that he would pay over to his wife whatever money he might earn, and that he would do nothing without her permission, and that if he did so she would be at liberty to divorce him. In a suit by the wife to recover from him his earnings it was held that though the latter part of the agreement might be unlawful, the suit was one to enforce the legal part, and the Court gave-a decree to the plaintiff for her maintenance at Rs. 12 per month, stating that the fair construction of the agreement was not that the husband was to pay every rupee he earned, but that he was entitled to a reasonable deduction for expenses which he must necessarily incure. (https://www.paksearch.com/Government/CORPORATE/Contract/F58.htm)

Transfer of property.---When a document transferring immovable property has been once executed and registered, the transaction "passes out of the domain of a mere contract into one of conveyance". It then becomes governed by the Transfer of Property Act, and S. 24 of the Contract Act has no application. (https://www.paksearch.com/Government/CORPORATE/Contract/F59.htm)

[B]Trusts Act, 1882---S. 4 of the Act provides that where a trust is created for two purposes of which one is lawful, and the other unlawful, and the two purposes cannot be separated, the whole trust is void.

25. Agreement without consideration void, unless it is in writing and registered. An agreement made without consideration is void, unless:---

(1) It is expressed in writing and registered under the law for the time being in force for the registration of documents, and is made on account of natural love and affection between parties standing in a near relation to each other; or unless;

(2) or is a promis to compensate for something 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, or unless.

(3) or is a promise to pay a debt barred by limitation law; it is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorised in that behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits.

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

Explanation 1.---Nothing in this section shah 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 even 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.

(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 find B's purse and gives it to him. B promise to give A Rs. 50. This is a contract.

(d) A supports B's infant son. B promises to pay A's expenses in so doing. This is a contract.

(e) A ownes 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. A's consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

(g) A agrees to sell 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's consent was freely given.

Consideration.---This section declares long after consideration has been defined [S. 2, sub-s. (d)], that (subject to strictly limited exceptions) it is necessary element of a binding contract. This has already been assumed in S. 10. The present section goes on to state the exceptional cases in which consideration may be dispensed with. It is curious that the Act nowhere explicitly states that mutual promises are sufficient consideration for one another, though it is assumed throughout the, Act, and seems to be involved in the definitions of "agreement" and "reciprocal promises" in S. 2, sub-ss. (e) and (f).

The most obvious examples of an agreement without consideration is a purely gratuitous promise given and accepted. Such a promise has no legal force unless it comes within the first class mentioned in the present section. But there are other less obvious cases; and they must be all the more carefully noted because neither the text nor tile illustrations of this section throw any light on them. It is not enough that something, whether act or promise, appears on the face of the transaction, to be given in exchange for the promise. That which is given need not be of any particular value; it need not be in appearance or in fact of approximately equal value with the promise for which it is exchanged (see commentary on Explanation 2, below); but it must be something which the law can regard as having some value, so that the giving of it effects a real though it may be a very small change in the promisee's position; and this is what English writers mean when they speak of consideration as good, sufficient, or valuable. And apparent consideration which has no legal value is no consideration at all. The section, however, can only apply where the transaction is contractual in nature. Where a document is in form and substance a gift no consideration is necessary. (https://www.paksearch.com/Government/CORPORATE/Contract/F60.htm)

Forbearance and compromise as consideration.---Compromise is a very common transaction, and so is agreement to forbear prosecuting a claim, or actual forbearance at the other party's request, for a definite or for a reasonable time. It may seem at first sight that in all these casks the validity of the promise is doubtful. For the giving up, or forbearing to exercise, an actually existing and enforceable right is certainly a good consideration; (https://www.paksearch.com/Government/CORPORATE/Contract/F61.htm) but what if the claim is not well founded? Can a cause of action to which there is a complete defence be of any value in the eye of the law? If a man bargains for reward in consideration of his abandonment of such a cause of action, does he not really get something for nothing, even if he believes he has a good case? The answer is that abstaining or promising to abstain from doing anything which one would otherwise be lawfully free to do or not to do is a good consideration, and every man who honestly thinks he has a claim deserving to be examined is free to bring it before the proper Court, and have the judgement of the Court on its merits, without which judgment it cannot be certainly known whether the claim is well founded or not; for the maxim that every man is presumed to know the law, not a very safe one at best, is clearly inapplicable here. That which is abandoned or suspended in a compromise is not the ultimate right or claim of the party, but his right of having the assistance of the Court of determine and, if admitted or held good, to enforce, it. "If an intending litigant bona fide forbears a right to litigate a question of law or fact which it is not vexatious or frivolous to litigate, he does give up something of value. It is a mistake to suppose it is not an advantage, which a suitor is capable of appreciating, to be able to litigate his claim, even if he turns out to be wrong. Forbearance to sue for or demand a merely honorary or customary debt may be a good consideration. (https://www.paksearch.com/Government/CORPORATE/Contract/F62.htm) But the abandonment of an obviously groundless claim will not make a good consideration "any more than a promise to pay a sovereign in satisfaction of a debt of a guinea is supportable by the consideration that it saves the creditor the trouble of bringing an undefended action for the larger sum." (https://www.paksearch.com/Government/CORPORATE/Contract/F63.htm)

The principle thus slated is followed by the Indian Courts. Thus where after the expiration of the time fixed for completion of a mortgage the mortgagee declined to advance the money unless the mortgagor consented to pay interest from the date fixed for the completion, and the mortgagor agreed to do so, it was held that there case was a good consideration for the agreement though time was probably not of the essence of the original contract. The mortgagee believed in good faith that he was entitled to rescind at once, and the abandonment of his claim to do so was consideration enough for the mortgagor's agreement to his terms. (https://www.paksearch.com/Government/CORPORATE/Contract/F64.htm) An agreement in the nature of a compromise of a bona fide dispute as to the right of succession to a priestly office is not without consideration; nor is a mutual agreement to avoid further litigation invalid on this ground.

In the case of family arrangements, the Court will not look too closely into the quantum of consideration, and an arrangement designed to promote peace and good will among members of a family has been held to be based on good consideration, even in the absence of a dispute or of a claim to property. (https://www.paksearch.com/Government/CORPORATE/Contract/F65.htm)

A compromise relating to title to land, at a time when it was doubtful, is valid, although subsequently it may be found by judicial decision in another case, that one of the parties to the corn. promise had a wholly valid title, and the other had not title at all. (https://www.paksearch.com/Government/CORPORATE/Contract/F66.htm) An agreement by client to pay to his vakil after the latter had accepted the vakalatnama certain sum in addition to his fee if the suit was successful is without consideration. (https://www.paksearch.com/Government/CORPORATE/Contract/F67.htm)

But if a man, being already under a legal duty to do something, undertakes to do something more than is contained therein, or to perform the duty in some one of several admissible ways, in other words, to forgo the choice Which the law allows him, this is a good consideration for a promise of special reward.

Negotiable Instruments.---The law merchant has almost---but, as it is held by something very near a fiction, not quite---made an exception to the rule of consideration in the case of negotiable instruments, or rather established another and independent rule. The Negotiable Instruments Act, 1881, S. 118, affirming the well-settled general law, enacts that until the contrary is proved the presumption shall be made that every negotiable instrument was made or drawn for consideration; and that every such instrument, when it has been accepted, endorsed, negotiated, or transferred, was accested, endorsed, negotiated, or transferred for consideration. The second branch of the above rule stands as illustration (c) to S. 114 of the Evidence Act, 1872.

Registered writing.---The English doctrine that the "solemnity of a deed" is of itself sufficient to make a promise expressed in a sealed writing valid has never been received in India. The Act does not allow any form alone to dispense with consideration, but only writing and registration coupled with the motive of natural love and affection between nearly related parties. The words "near relation" have not been judicially construed. The Courts would, it need hardly be said, have to construe them uniformly without regard to variations in the reckoning of degrees of kindred, for the purposes of inheritance or the like, in different personal laws or customs. A registered agreement between a Muhammadan husband and his wife to pay his earnings to her is within the provisions of cl. 1 of the section. So is a registered agreement whereby A on account of natural love and affection for his brother. B, undertakes to discharge a debt due by B to C. In such a case, if A. does not discharge the debt, B may discharge it, and sue A to recover the amount. (https://www.paksearch.com/Government/CORPORATE/Contract/F68.htm) It is not to be supposed that the nearness of relationship necessarily imports natural love and affection.

Compensation for voluntary services.---The second sub-section considerably extends the real or supposed exceptions (for their authority is by no means clear) allowed in the Common Law to the principle that past consideration is no consideration at all, since the consideration and the promise have to be simultaneous. The language of the Act is quite dear, and must be taken as expressing a deliberate policy.

The act voluntarily done must have been done for the promisor. If it is done for any other person, the promise does not come within the provisions of this clause. In an Allahabad case the defendants by a written agreement promised to pay to the plaintiff a commission on articles sold by them in a market established by the plaintiff at his expense. The market was not established at the desire of the defendants, nor was it erected for them, but this was done at the request of the Collector of the place. The only ground for making the promise was the expense incurred by the plaintiff in establishing the ganj. The Court held that the promise could not be supported under the present sub-section. (https://www.paksearch.com/Government/CORPORATE/Contract/F69.htm) Further, the act voluntarily done must have been done for a promisor who was in existence at the time when the act was done. Hence work done by a promoter of a company before its formation cannot be said to have been done for the company. Again, the act done must have been done for a promisor who is competent to contract at the time when the act was done. Hence a promise by a person on attaining majority to repay money lent and advanced to him during his minority does not come within the exception, the promisor not being competent to contract when the loan was made to him. It has been so held by the High Courts of Madras and Allahabad. (https://www.paksearch.com/Government/CORPORATE/Contract/F70.htm) A different view has been taken by the High Court of Calcutta, (https://www.paksearch.com/Government/CORPORATE/Contract/F71.htm) and in the Punjab, (https://www.paksearch.com/Government/CORPORATE/Contract/F72.htm) but it does not appear to be sound law.

The intention of the promisor must have been to compensate the promises. In Abdullah Khan case (https://www.paksearch.com/Government/CORPORATE/Contract/F73.htm) a son had sent money to his father from time to time, not intending to make a loan. Later at a time when the father was heavily indebted, he transferred some immovable property to his son. The transaction was held not to fall within the sub-section, as the real intention was not to compensate the son but to defraud the creditors of the father.

It is clear that a case cannot come within this exception unless the act has been done voluntarily. (https://www.paksearch.com/Government/CORPORATE/Contract/F74.htm) In a Privy Council case, B agreed to give his son in adoption, if A agreed to advance money to defray the expense of defending any suit challenging the adoption. There was litigation, and A advanced money towards the cost. Thereafter A died, and A's son advanced money to the adopted son. While the adoption suit was pending before the Privy Council, the adopted son passed a promissory note in favour of A's son, who agreed that if the adopted son was unsuccessful before the Privy Council, the promissory note would not be enforced. The adopted son was successful, and A's son filed a suit on the promissory note. It was held that S. 25 (2) was not applicable, because to invoke the aid of that provision, it had to be proved that the payment had been made voluntarily, and this had not been established, it being held that the money was advanced to give effect to the undertaking originally made by A, not purely on the request of the adopted son. (https://www.paksearch.com/Government/CORPORATE/Contract/F75.htm) There must also be a promise in the first instance. A clause in a memorandum of articles of association of a company providing for , payment to a promoter of the company does not constitute a promise by the company to the promotor. Hence a claim against the company for remuneration by a promoter of the company cannot be supported under this section, where such a claim is based merely on tile provisions of file memorandum and articles of association of the company.

Promise to pay a barred debt.---Sub-s. (3) reproduced modern English law. The reason for upholding these promises was thus stated soon after the Act came into force by Westropp C.J. (https://www.paksearch.com/Government/CORPORATE/Contract/F76.htm) "The general rule of law, no doubt, is that a consideration merely moral is not a valuable consideration such as would support a promise; but there are some instances of promise which it was formerly usual to refer to the now exploded principle of previous moral obligation, and which are still held to be binding, although that principle has been rejected. Amongst those instances is a promise after full age to pay a debt contracted during infancy, and a promise (in writing) in renewal of a debt barred by the Statute of Limitations. The efficacy of such promises is now referred to the principle that a person may renounce the benefit of a law made for his own protection." Accordingly this exception applies only where the promisor is a person who would be liable for the debt if not time-barred, and does not cover promises to pay time-barred debts of third persons.

To create a "promise" it is not necessary that there should be an accepted proposal reduced to writing. All that is necessary is that there should be a written proposal by the promisor accepted before action, for a written proposal becomes a promise when accepted. (https://www.paksearch.com/Government/CORPORATE/Contract/F77.htm) Sinha J, has dissented from this view, holding that the record in writing must come into existence after a proposal has been made and accepted. (https://www.paksearch.com/Government/CORPORATE/Contract/F78.htm) It is submitted that this decision is erroneous, and that on the facts of the case, where there was a written notice by the defendant to the plaintiff that a pay order had been issued to him, which was accepted by the plaintiff by calling at the specified place for payment, there had been a promise in writing, which, subject to the question of the signature, fell within the ambit of S. 25 (3), and could be sued upon despite subsequent repudiation by the defendant.

The distinction between an acknowledgment under S. 19 of the Limitation Act and a "promise" within the meaning of this section is of great importance. Both an acknowledgment and a promise are required to be in writing signed by the party or his agent authorised in that behalf; and both have the effect of creating a fresh starting point of limitation. But while an acknowledgment under the Limitation Act (https://www.paksearch.com/Government/CORPORATE/Contract/F79.htm) is required to be made before the expiration of the period of limitation, a promise under this section to pay a debt may be made after the limitation period. After the period of limitation expires, nothing short of an express promise will provide a fresh period of limitation; an implied promise is not sufficient. The question occasionally arises whether a writing relating to a barred debt amounts to an acknowledgment or to a promise. Here the Court must consider the language of the particular document before it in every case. If it amounts to an acknowledgment, the writing could not avail the plaintiff under this section; but it is otherwise where it amounts to a promise. Thus khata, or an account stated has been held to be a mere acknowledgment as distinguished from a promise under this section. (https://www.paksearch.com/Government/CORPORATE/Contract/F80.htm) Similarly a bare statement of an account is not a promise within the meaning of this section. (https://www.paksearch.com/Government/CORPORATE/Contract/F81.htm) In the same way the word baki deva (balance due) at the foot of a Gujarati account were held not to amount to a promise. (https://www.paksearch.com/Government/CORPORATE/Contract/F82.htm) An agreement to execute a mortgage to pay off a time-barred debt does not amount to a promise to pay the debt. (https://www.paksearch.com/Government/CORPORATE/Contract/F83.htm) On the other hand, where a tenant wrote to his landlord in respect of rent barred by limitation, "I shall send by the end of Veyshak month," it was held that the words constituted a promise under this section. (https://www.paksearch.com/Government/CORPORATE/Contract/F84.htm) It has been held that an intimation that a pay order has been issued in favour of the plaintiff, coupled with a request to call for payment is not a promise to pay, on the ground that the authorities say that an implied promise is not sufficient. (https://www.paksearch.com/Government/CORPORATE/Contract/F85.htm) The learned judge does not specify the authorities he has in mind, and it is submitted that such an intimation is a clear promise to pay. A Full Bench of the Lahore High Court has held that whenever a balance is struck and over and above that interest is fixed, there is a promise to pay. (https://www.paksearch.com/Government/CORPORATE/Contract/F86.htm)

An agreement between a creditor and a debtor entered into before the expiry of the period of limitation, whereby the date of payment is extended beyond the period of limitation, is valid, though verbal, if there is a consideration for the agreement, e.g. payment of interest up to the extended date. Such an agreement is not an acknowledgment within the meaning of S. 19 of the Limitation Act, nor is it a promise to pay a barred debt; it may be enforced at any time within three years from the date on which it was made. (https://www.paksearch.com/Government/CORPORATE/Contract/F87.htm) "A promise to pay may be absolute or conditional. If it is absolute, if there is no 'but' or 'if', it will support a suit without anything else; if it is conditional, the condition must be performed before a suit upon it can be decreed.

Similarly, if the promise be to pay a barred debt "within a month," the promisee must wait for a month before he can sue on the promise. If the debtor promises to pay a barred debt out of his share of the profits of the business started by him in partnership with his creditor, the latter cannot recover the debt except in the manner provided in the agreement. (https://www.paksearch.com/Government/CORPORATE/Contract/F88.htm)

Agent generally or specially authorised in that behalf. A Collector, as agent to the Court of Wards, is not an agent "generally or specially authorised in that behalf" so as to bind a ward of the Court of Wards by a promise to pay a barred debt. A pleader cannot bind his client unless he is specially authorised in that behalf; nor a minor's guardian the minor.

Debt.---The expression "debt" here means an ascertained sum of money. A promise, therefore, to pay the amount that may be found due by an arbitrator on taking accounts between the parties is not a promise to pay a "debt" within this section. The expression "debt" in this clause includes a judgment debt. A promise, therefore, to pay the amount of a decree barred by limitation does not require any consideration to support it.

It is not necessary to the operation of this clause that the promise should in terms refer to the barred debt. Thus where A passed a promissory note for Rs. 325 to B, and after the debt was time-barred, passed another note promising "to pay Rs. 325 for value received in cash," it was held that it was open to B to show that the amount, though not paid in cash, referred to the debt due under the first note. (https://www.paksearch.com/Government/CORPORATE/Contract/F89.htm)

An insolvent who has obtained his final discharge is under no legal obligation to pay any debt included therein, and any promise to pay it is accordingly without consideration. Such a debt is said to be barred by insolvency, and the Contract Act contains no exception in favour of a promise to pay it. (https://www.paksearch.com/Government/CORPORATE/Contract/F90.htm) It is not clear, however, whether the same principle would apply to a promise without new consideration to pay a debt in respect of which the insolvent has obtained only his personal, and not his final discharge, and which is included in the judgment entered up against him in favour of the official assignee. In such a case it will be observed that the creditor's remedy is not, stricly speaking, barred, but is transferred to the official assignee, who alone can recover the debt in the manner and subject to the conditions provided by the relevant Insolvency Act. The defendant filed his petition and schedule in the Insolvent Debtor's Court, and subsequently obtained his personal discharge. On the same day judgment was entered up against him in the name of the official assignee for the full amount of debts stated in the schedule. After this was done the plaintiff, who was a scheduled creditor for Rs. 5,000, entered into an agreement with the insolvent whereby, in satisfaction of his claim for Rs. 5,000, he agreed to accept from the insolvent a present cash payment of Rs. 800, and either the execution of a conveyance to him of a certain property or the payment of a further sum of Rs. 1,600 in cash. The creditor sued the insolvent on the agreement and one of the defences was that there was no consideration. It was held that the defendant's promise was not without consideration, for the plaintiff by the agreement impliedly gave up his right to share in any future rateable distribution under S. 86 of the Insolvent Debtors' Act (the Act which at the time regulated the legal position) and also the right accessory thereto, namely, of opposing the final discharge of the insolvent. The agreement, however, was held to be void as being against public policy within the provisions of S. 23.

Explanation I needs no comment. It may be taken as a statement made by way of abundant caution.

Explanation 2 declares familiar principle of equity. First, the Court leaves parties to make their own bargains; it will not set up its own standard Of exchangeable values. There must be some consideration which the law can regard as valuable; but the fact that a promise is given for a certain consideration, great or small, shows that the promisor thought the consideration worth having at the price of his promise. Hobbes, though not a lawyer and having no. love for the Common Law, correctly expressed its doctrine when he said in his "Leviathan": "The value of all things contracted for is measured by the appetite of the contractors and therefore the just value is that which they be contended to give." One or two English examples Will suffice. Parting with the possession of goods, even for a very short time, and' though it does not appear what advantage the promisor was to have from it, is consideration enough for a promise to return them in the same condition. An agreement to continue, though not for any defined time, an existing service, determinable at will, is a sufficient consideration. If the owner of a newspaper offers the financial editor's advice to readers who will send their queries to a given address, the trouble of sending an inquiry is a sufficient consideration for an undertaking that reasonable case shall be used to give sound advice in answer thereto. It would seem that a contract is concluded as soon as the reader has sent in his inquiry, the general offer being not merely an invitation, but the proposal of a contract (see notes on S. 8, "general offers" above); though it would also seem that only nominal damages would be recoverable if the editor did not answer at all.

Secondly, the fact that a consideration is grossly inadequate may nevertheless be material as evidence of coercion, fraud, or undue influence. The leading modern dictum on this subject will immediately be given as cited in an Indian case by the Privy Council. It must be remembered that inadequacy of consideration may be evidence that the promisor's consent was not free, but is no more; it is not of itself conclusive. Standing alone, inadequacy, as such, is not a bar even to specific performance.

Agreement to pay time-barred debt---Cannot be avoided u/s. 25. (https://www.paksearch.com/Government/CORPORATE/Contract/F91.htm)

Consideration---Inadequacy of---Effect of---Held: Agreement to which consent of promisor freely given to be not void merely because of consideration being inadequate---Inadequacy of consideration, however, to be competently taken into account in determining question whether consent of promisor freely given. (https://www.paksearch.com/Government/CORPORATE/Contract/F92.htm)

Transaction to pay a time-barred debt---Gives rise to inference that it was without consideration---Such transaction would be void u/s. 25 (3). (https://www.paksearch.com/Government/CORPORATE/Contract/F93.htm)

Inadequacy of consideration---Effect on agreement---Agreement to which consent of promiser was freely given, held, would not be void merely because of inadequacy of consideration---Such inadequacy of consideration, could be taken into account by the Court in determining question whether consent of promiser was freely given---Circumstances in which sale-deed was executed and fact that same was not given effect in revenue record in the life-time of vendor and till a further period of four years after death of vendor, held, would lead to irresistible conclusion that sale-deed was not a genuine transaction and consent of seller was not freely given. (https://www.paksearch.com/Government/CORPORATE/Contract/F94.htm)

Time barred debt---Promise to pay under duress---Promise invalid. Promise in writing to pay a debt which was already time barred was extracted from the defendant under policy pressure.
Held: This document cannot be held to be a valid document and no relief on the basis of such a document can be granted to the respondent. (https://www.paksearch.com/Government/CORPORATE/Contract/F95.htm)

Promise to pay should not be conditional but absolute---Conditional promise---Not effective. An agreement for payment of a debt should be an absolute promise. If it is a conditional promise dependent on the happening or the success of certain events. It is the duly of the plaintiff to prove that these events have happened and the defendant was to perform the promise. Failure to prove it is fatal to the success of a suit based on such a document. (https://www.paksearch.com/Government/CORPORATE/Contract/F96.htm)

Promise---Need not be express---Promise deducible from instrument sufficient to constitute contract. The requirement of the section is not that the promise itself must be in express terms but that such promise should be deducible from a written and signed document. It is clear that without written words and the signature of the promiser, there cannot be a contract within the meaning of the said section; but if the words used in writing do mean a promise to pay, or if from the said words a clear intention to pay can be inferred, then the requirement of section 25 (3) of the Act is fulfilled. (https://www.paksearch.com/Government/CORPORATE/Contract/F97.htm)

Time-barred debt of father---Son promising to pay---Suit for recovery of debt on promise not barred by time---Son liable to pay debt to the extent of money received by him from estate of father. A son on the death of the father would be liable to pay the debt of the father to the extent of the estate of the deceased father in his hands or received by him. Therefore, on the basis of the acknowledgment, the suit is barred by time but on the basis of promise the suit is within time because the promise was made on 8th July, 1972 and the suit was filed on 4th August 1975, the date when the Court re-opened after summer vacation and as the time of three years had expired during the vacations. However, on the basis of the promise tile defendant shall be liable to the extent of the money of the deceased father received or to be received by him. (https://www.paksearch.com/Government/CORPORATE/Contract/F98.htm)

Agreement without consideration---Void. An agreement without consideration is void unless it comes under any of the exceptions set out in Sub-clauses (1) to (3) of section 25 of the Contract Act. (https://www.paksearch.com/Government/CORPORATE/Contract/F99.htm)

Gift made Without consideration---Void---Conditions for such a gift. When a gift was made for services rendered although they could not be measured in money:
Held: The recital in the deed of gift in respect of the services rendered by the donee to the donor is only a motive for making the gift and is not a consideration for the gift, and it does not alter the character of the gift unless such services were in fact rendered for consideration and in expectation of a return and could be reckoned as having a monetary value.

Explanation I to section 25 of the Contract Act is fully applicable and the gift is perfectly valid even if there was no consideration for it. For such a gift to be valid the three essential conditions are;

(1) clear and unambiguous declaration of the intention of the donor to give immediately a property to the donee;

(2) acceptance of the gift by the donee and;

(3) delivery of possession of the subject of gift to the donee
and if these three conditions are fulfilled, the gift is complete and valid. (https://www.paksearch.com/Government/CORPORATE/Contract/G1.htm)