2.

8 AGREEMENTS OPPOSED TO PUBLIC POLICY

Public policy is that principle of law which holds that no citizen can lawfully do that which
has a tendency to be injurious to the public. An agreement is said to be opposed to public
policy when it is injurious to the welfare of the society or it tends to prejudice the welfare of
the society.
Following agreements have been declared by the Courts as opposed to public policy and they
are as follows:
1. Trading with an alien enemy: All agreements made with an alien enemy are illegal on the
ground of public policy.
2. Agreement for stifling prosecution: An agreement which seeks to absolve an offender of
criminal liability or excuse him from prosecution or to withdraw a criminal case pending
against him is known as an agreement stifling prosecution.
3. Maintenance and Champerty: Any agreement which improperly promotes litigation is
opposed to public policy. Such agreements may be either maintenance or Champerty.
4. Agreement for sale of public offices and titles: The agreements for the sale or trafficking
in public offices or to obtain public title like Padma Shree etc., are illegal on the ground of
being opposed to public policy.
5. Marriage brokerage agreements: Agreements to procure marriages for reward, or
agreement to pay money to the parent or guardian of a minor in consideration of his
consenting to give the child in marriage, are void.
6. Agreement in restraint of personal liberty: An agreement which unduly restricts the
personal liberty of any person is void on the ground of being opposed to public policy.
7. Agreement in restraint of parental rights: An agreement which is inconsistent with the
duties arising out of such guardianship is void as being opposed to public policy.
8. Agreements tending to create interest opposed to duty: An agreement with a public
servant which obliges him to do something which is inconsistent with his official duty, shall
be void as being opposed to public policy.
9. Agreements interfering with marital duties: Any agreement which interferes with the
performance of marital duties, it is void. For example, an agreement that the husband shall
always live at the wife’s house was held to be void.
10. Agreements to vary the period of limitation: Agreements, the object of which is to
curtail or extend the period of limitation prescribed by the law of limitation, are void.
11. Agreements to defraud creditors or revenue authorities: The agreements, the object of
which is to defraud the creditors or revenue authorities are void as being opposed to public
policy.
12. Agreement tending to create monopoly: An agreement, the object of which is to create
monopoly is illegal and void as being opposed to public policy.
13. Agreement to commit a crime: An agreement to indemnify a person against
consequences of his criminal act is void as opposed to public policy. These act may be
grouped under the following heads:
a) Agreements in restraint of marriage [Section 26].
b) Agreements in restraint of trade [Section 27].
c) Agreements in restraint of legal proceedings [Section 28].

All these agreements will be discussed in detail in the next chapter on “Void Agreement”.
VOID AGREEMENTS
According to Section 2 (g) of the Indian Contract Act, 1872, a void agreement is an
agreement which is not enforceable by law. A void agreement does not create any legal rights
and obligations. It is void-ab-initio (i.e., void from the very beginning) and without any legal
effect. Agreements, which possess all the essential elements of a valid contract laid down in
Section 10, must not have been expressly declares as void by any law in force in any country.
The following agreements have been expressly declared as void by the Indian Contract Act:
1. Agreements by incompetent persons [Section 11].
2. Agreements made under a mutual mistake [Section 20].
3. Agreements, the object or consideration of which is unlawful [Section 23].
4. Agreements, the object or consideration is partly unlawful [Section 24].
5. Agreements made without consideration [Section 25].
6. Agreements in restraint of marriage [Section 26].
7. Agreements in restraint of trade [Section 27].
8. Agreements in restraint of legal proceedings [Section 28].
9. Agreements the meaning of which is uncertain [Section 29].
10. Agreements by way of wager [Section 30].
11. Agreements to do impossible acts [Section 56].
Agreements from 1 to 5 have already been discussed in earlier chapters. The other agreements
are discussed below:
AGREEMENTS IN RESTRAINT OF MARRIAGE [SECTION 26]
According to Sec. 26 of the Act, “every agreement in restraint of the marriage of any person, other than a minor, is
void”. The law regards the marriage as the right of every person. Restriction on the freedom of people shall be
against public policy and, therefore, void.
Example: A promised to marry B only and none else, and to pay Rs. 2000 in default. A married C and B sued A
for recovery of Rs. 2000. It was held that B could not recover anything because the agreement was in restraint of
marriage. [Lowe vs. Peers]
It may be noted that an agreement which provides for a penalty upon remarriage may not be considered as a
restraint of marriage.
AGREEMENTS IN RESTRAINT OF TRADE [SECTION 27]
According to Sec. 27 of Indian Contract Act, 1872, “every agreement by which anyone is
restrained from exercising a lawful profession, trade or business of any kind, is to that extent
void”. This is because Article 19 (g) of the Constitution of India regards the freedom of trade
and commerce as a right of every individual. Therefore, no agreement can deprive or restrain
a person from exercising such a right.
Example: In the case, Madhub Chander vs Raj Coomar, A and B were rival shopkeepers in a
locality of Calcutta. A agreed to pay a sum of money to B if he would close his business in
that locality. B closes his shop. On A’s refusal to pay the amount, the court held that the
agreement was void under Sec. 27 of the Act.
EXCEPTIONS
The following are the exceptions to the rule that ‘an agreement in restraint of trade is void’.
1. Statutory Exceptions
a) Sale of Goodwill: An agreement which restrains the seller of a goodwill from carrying on
a business is valid if all the following conditions are fulfilled:
(i) The seller should be restrained only from carrying on a similar business;
(ii) The restriction shall apply so long as the buyer or any person deriving title from him is
carrying on a similar business;
(iii) The restraint should apply only within specified local limits.
(iv) The restraint must be reasonable having regard to the nature of the business.
b) Restrictions under Partnership Act: The following restrictions are provided in the
Partnership Act, 1932:
(i) Restriction on existing partner [Section 11(2)]: A partner shall not carry on any business
other than that of the firm while he is a partner.
(ii) Restriction on outgoing partner [Section 36(2)]: An agreement by an outgoing partner
with the continuing partners not to carry on a business similar to that of the firm within a
specified period or within specified local limits shall not be void.
(iii) Restriction in anticipation of dissolution [Section 54]: Agreement amongst partners
that upon dissolution of the firm some or all of them shall not carry on similar business within
a specified period or within specified local limits shall not be void.
(iv) Restriction in case of sale of goodwill of the firm [Section 55 (3)]: Agreement by a
partner upon sale of goodwill of the firm, with the buyer thereof not to carry on any similar
business within a specified period or within specified local limits shall not be void.
2. Under Judicial Interpretations
a) Trade Combinations: Trade combinations which have been formed to regulate the
business or to fix prices are not void, but the trade combinations which tend to create
monopoly and which are against the public interest are void.
b) Service Agreements: Agreements of service often contain a clause by which the employee
is prohibited from working anywhere else during the term of the agreement, such agreements
are valid.
c) Sole Dealing Agreements: An agreement to deal in the products of a single manufacturer
or to sell the whole produce to a single dealer is valid if their terms are reasonable.

AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS [SECTION 28]

An agreement by which any party is restricted absolutely from enforcing his legal rights
under or in respect of any contract is void to that extent. An agreement which interferes with
the course of justice is void on account of its being opposed to public policy.
The following are the four kinds of agreements which are in restraint of legal proceedings,
and are therefore, void:
a) Absolute restrictions from enforcing legal rights: Any agreement that absolutely
restricts a party to a contract from enforcing his contractual rights in ordinary tribunals is
void.
b) Agreements curtailing the limitation period: An agreement which limits the time within
which an action may be brought so as to make it shorter than that prescribed by the Law of
Limitation, is void because its object is to defeat the provisions of law.
c) An agreement which extinguishes the rights of a party.
d) An agreement which discharges a party from liability.

Exceptions
There are the following two exceptions to the rule laid down in Section 28:
1. Restraints for referring the future disputes to arbitration.
2. Restraints for referring the existing or present disputes to arbitration.

AGREEMENTS THE MEANING OF WHICH IS UNCERTAIN [SECTION 29]

An uncertain agreement is one, the terms of which are uncertain or not capable of being made
certain without further agreement between the parties are void. An agreement with uncertain,
ambiguous or vague terms is void because in such cases, courts may not give a practical
meaning to the contract.
Example: A agreed to sell to B, 100 tons of oil. There is nothing whatever to show what kind
of oil was intended. Therefore, the agreement is void for uncertainty.

AGREEMENTS BY WAY OF WAGER [SECTION 30]

The term ‘wagering agreement’ or ‘wager’ may be defined as an agreement in which one
person agrees to pay certain amount of money to the other person on the happening or non-
happening of a specified uncertain event.
Sir William Anson defines a wager as “a promise to give money or money’s worth upon the
determination or ascertainment of an uncertain event” and this definition was quoted by the
Supreme Court in Gherulal Parekh vs Mahadeo Das Maiya.
Examples:
i) X agrees with Y that if there is rain on a certain day X will pay Y Rs. 1000. If there is no
rain Y will pay X Rs. 1000. The agreement is of a wagering nature.
ii) A test match between India and Australia has ended in Kolkata today. Both A and B are
ignorant of the result. A agrees with B to pay 1000 in case India wins and B agrees to pay A
Rs. 1000 in case India does not win. The agreement is of a wagering nature.
Essential Features of a Wager Agreement
1. Promise to pay money or money's worth: There must be a promise to pay money or
money's worth by one party to the other.
2. Event: The promise must be conditional on the happening or not happening of an event.
3. Uncertainty of the event: The agreement must be conditional upon the determination of
an uncertain event. An event may be uncertain not only because it relates to future but
because it is not yet ascertained to the knowledge of the parties.
4. Mutual chances of gain or loss: Each party must stand an equal chance to win or lose on
the determination of the contemplated events.
5. No control over the event: Neither party should have control over the happening or non-
happening of the event.
6. Stake as the only interest: Neither party should have any interest other than the sum or
stake that he stands to win or lose.
Effects of Wagering Agreement
a) Agreements by way of wager are void in India.
b) Agreements by way of wager have been declared illegal in the states of Maharashtra and
Gujarat.
c) No suit can be filed to recover the amount won on any wager.
d) Transactions which are collateral to wagering agreements are not void in India except the
states of Maharashtra and Gujarat (Wagering agreements which are illegal).

Exceptions to Wager
The following transactions are not wagers:
1. Horse race: An agreement to contribute or subscribe towards any plate, prize or sum of
money, the amount of rupees five hundred or more to be awarded to the winners of any horse
race is a valid agreement and not a wager. In 1996, the Supreme Court has held horse races to
be "games of skill" and not gambling.
2. Crossword competitions: Crossword puzzles are games of skill. But if in crossword
competition, the winning of the prize depends upon the tallying of competitors' entry with the
solution kept with the editor of the magazine, then it is a wagering transaction. According to
the Prize Competition Act, 1955, prize competitions in games of skills are not wagers
provided the amount of prize does not exceed Rs. 1000.
3. Games of skill: Picture puzzles, literary and athletic competitions, being based on skill and
intelligence, are games of skill.
4. Share market transactions: In the share market if the intention is to take and give
delivery of stocks and shares, it is a valid transaction.
5. Contracts of insurance: It is a contract in which an insurer, in consideration of a certain
sum of money, undertakes to make good the loss of the insured arising on the happening of an
uncertain specified event.
6. Chit Fund: In it, a certain number of persons contribute a fixed sum for a specified period
which is made over to one of them at the end of a pre-determined period in accordance with
an agreed plan. These are not wagers.
Difference Between Wagering and Contract of Insurance
1. Contract of insurance is valid and can be enforced in court of law, where as wagering
agreement is void under section 30, without any legal effect.
2. In case of insurance contract, the assured has an insurable interest in the subject matter,
while in the wagering agreements the parties have no interest in the agreement except the
stake.
3. A contract of insurance except life insurance, is a contract of indemnity i.e., in the event of
loss only actual loss is to be made good, whereas in wagering agreements the amount to be
paid is decided beforehand.
4. A contract of insurance is based on scientific actuarial calculation of risks while wagering
transactions are a pure gamble or game of chance.
5. A wager will arise only if one party losses and another gains while in insurance contract no
winning or losing.
6. Insurance contracts are social security measures which are beneficial to the public while
wagering transactions do not promote public welfare in any way, rather they encourage
gambling which is injurious to the interest of public.

Commercial Transaction and Wager

An agreement for the actual sale and purchase of goods is not a wagering agreement. But
sometimes it becomes difficult to determine whether a particular transaction is by way of
wager or a genuine business transaction.
Lotteries
A lottery is a game of chance, therefore, an agreement to buy a lottery ticket, is a wagering
agreement. If the lottery is authorized by Government, it does not cease to be a wagering
transaction, the only effect of such sanction is that the persons conducting the lottery will not
be prosecuted under the penal law.
CONTINGENT CONTRACT
A contract may be absolute or contingent.
Absolute Contract
An absolute contract is one in which the promisor binds himself to performance independent
of any condition of contingency i.e., the promisor undertakes to perform the contract in all
events.
Contingent contract
According to Section 31 of the Contract Act, a contingent contract “is a contract to do or not
to do
something, if some event, collateral to such contract does or does not happen”.
The performance of a contingent contract becomes due only upon the happening or non-
happening of some future uncertain event. In simple words, it is a conditional contract.
Contracts of insurance, indemnity and guarantee etc. are some of the important examples of
contingent contracts.
Example: A contracts to pay Rs. 10,000 to B if his (B’s) house is burnt. This is a contingent
contract as its performance is dependent upon an uncertain event (i.e., burning of B’s house).
Essentials of a Contingent Contract
A valid contingent contract must satisfy these essential requirements:
1. There must be a valid contract: It must fulfil the basic requirements of a valid contract
between the parties.
2. The performance of the contract must be conditional: The performance of a contingent
contract must depend upon the happening or non-happening of some future event.
3. The event must be uncertain: The future event, upon which the performance of a contract
depends, must be an uncertain event.
4. The event must be collateral to the contract: The event must be independent or ancillary to
the contract.
5. The event should not be the discretion of the promisor: The ‘mere will’ or ‘discretion’ of
the promisor is not an event for the purpose of a contingent contract.
RULES REGARDING CONTINGENT CONTRACTS
1. Contingent contracts dependent on the happening of future uncertain event: Sec. 32
provides that “contingent contract to do or not to do anything if an uncertain future event
happens cannot be enforced by law unless and until that event has happened. If the event
becomes impossible such contracts become void.
2. Contingent contracts dependent on the non-happening of future uncertain event: Sec.
33 Provides that “contingent contract to do or not to do anything if an uncertain future event
does not happen can be enforced when the happening of that event becomes impossible, and
not before.
3. Contingent contracts dependent on the future conduct of a living person: According to
Sec. 34, if a contract is contingent upon how a person will act at an unspecified time, the
event shall be considered to become impossible when such person does anything which
renders it impossible that he should so act within any definite time, or otherwise than under
further contingencies.
4. Contingent contracts dependent on the happening of specified uncertain event within
a fixed time: According to Sec. 35 (para. I), if a person is to perform something within a
fixed time provided an uncertain event happens, then the person is bound to perform it, if
such particular event happens within that time.
5. Contingent contracts dependent on the non-happening of specified uncertain event
within a fixed time: Sec. 35 (para. II) provides that contingent contract to do or not to do
anything if a specified uncertain event does not happen within a fixed time may be enforced
by law when the time fixed has expired and such event has not happened, or before the time
fixed has expired, if it becomes certain that such event will not happen.
6. Contingent contracts dependent on the happening of an impossible event: Sec. 36
provides that contingent contract to do or not to do anything, if an impossible event happens,
are void, whether the impossibility of the event is known or not to the parties to the agreement
at the time when it is made.

Difference between Wager and Contingent Contract

Contingent Contract Wagering Contract

1. It is perfectly valid and can be enforced 1. It is absolutely void and cannot be

in a Court of Law. enforced in a Court of Law.

2. The parties have insurable interest in the 2. The parties do not have insurable interest
happening or non-happening of the event. in the happening or non-happening of the
event as such. Their main interest is in
winning or losing.

3. In this case, the future uncertain event is 3. In this case, the uncertain event is the
merely collateral or incidental. only determining factor.
 4. There may not be reciprocal promises. 4. It consists of reciprocal promises.

5. All contingent contracts are not of a 5. All wagering agreements are also
wagering nature, because all the contingent contingent contracts because they are
contracts are not void. dependent on uncertain event.

6. In a contingent contract, the parties are 6. In a wagering agreement, the parties are
interested in the occurrence or non- interested only for the stake.
occurrence of the event.

QUASI CONTRACTS
Under the Law of Contracts, the contractual obligations are voluntarily undertaken by the
contracting parties. However, under certain circumstances, a person may receive a benefit to
which the law regards another person as better entitled or for which the law considers he
should pay to the other person, even though there is no contract between the parties. Such
relationships are called quasi-contracts, because, although there is no contract or agreement
between the parties, they are put in the same position as if there were a contract between
them.
Definition
Quasi contract is defined as “an obligation to pay a sum of money, whether liquidated or
unliquidated, which arises independently of any contract, on the ground that in the
circumstances of the case, it is considered by the law to be just debt”.
It is a debt or obligation constituted by the act of the law apart from any consent or intention
of the parties or any privity of contract. These relationships are termed as quasi-contracts or
constructive contracts under the English Law and “certain relations resembling those created
by contracts” under the Indian Law.
A quasi-contract rests on the ground of equity that a person shall not be allowed to enrich
himself unjustly at the expense of another. That is why the law of quasi-contracts is known as
the law of restitution. Strictly speaking, a quasi-contract is not a contract at all. A contract is
intentionally entered into. A quasi-contract, on the other hand, is created by law.
KINDS OF QUASI CONTRACTS
The quasi contractual obligations are contained in Sections 68 to 72 of the Contract Act,
1872. These have been described below:
1. Supply of necessaries to persons incompetent to contract [Section 68]: The person who
has supplied the necessaries to a person who is incompetent to contract or anyone who is
dependent on such incompetent person, is entitled to claim their price from the property of
such incapable person.
Example: A supplies B, a lunatic, some necessaries suitable to the maintenance of his life. A
is entitled to be reimbursed from B’s property.
The following conditions are necessary for the applicability of the provisions of Section 68:
a) There must be the supply of necessaries to a person who is incompetent to contract such as
a minor or a person of unsound mind or dependents of such incompetent person.
b) The term 'necessaries' shall be construed in accordance with the situation in life of the
incompetent person, the nature of goods, the extent of supplies, etc.
c) The supplier can claim only reasonable value for the supplies made.
d) The reimbursement of the price of goods supplied can be obtained from the property of the
incompetent person who cannot be held personally liable.
2. Payment by an interested person
[Section 69]: A person who is interested in the payment of money which another is bound by
law to pay, and who, therefore, pays it, is entitled to be reimbursed by the other”.
Example: X is bound by law to make a certain payment. Y is interested in such a payment,
and he makes it, there will be a quasi contractual obligation of X to reimburse Y.
In order to make Section 69 applicable, the following conditions must be satisfied:
a) The plaintiff should be interested in making the payment in order to protect his own
interest and the payment should not be voluntary one.
b) The payment must be such as the other party was bound by law to pay.
c) The payment must not be such as the plaintiff himself was bound to pay.
3. Liability to pay non-gratuitous acts [Section 70]: Where a person lawfully does anything
for another person, or delivers anything to him not intending to do so gratuitously and such
other person enjoys the benefits thereof, the latter is bound to make compensation to the
former in respect of, or to restore, the things so done or delivered.
Example: A, a tradesman, leaves goods at B’s house by mistake. B treats the goods as his
own. He is bound to pay A for them.
A claim under this Section can be made only when the following conditions are satisfied:
a) The thing must have been done or delivered lawfully;
b) The person who has done or delivered the thing, must not have intended to do so
gratuitously; and
c) The person for whom the act is done/to whom thing is delivered must have enjoyed the
benefit of the act done/thing delivered.
4. Responsibility of a finder of goods [Section 71]: A person who finds goods belonging to
another, and takes them into his custody, is subject to the same responsibility as a bailee.
Example: X, a guest found a diamond ring at a birthday party of Y. X told Y and other guests
about it. He has performed his duty to find the owner. If he is not able to find the owner he
can retain the ring as bailee.
5. Payment by mistake or under coercion: A person to whom money has been paid or
anything delivered by mistake or under coercion must repay or return it.
Example: A paid some money to B by mistake which was in fact due to C. In this case, B
must repay the money to C as it had been paid under a bonafide mistake.