LIMITATIONS ON FREEDOM OF CONTRACT

Law includes-made by legislature,courts, delegated legislations

Consideration or object is lawful unless,

 Forbidden by law

2 types
1. Absolute forbiddance
2. Condnl forbiddance-forbiddance for admin purposes-usually for public order-act
is only allowed after performing the condn attached, ex-section 3(1,3,4) of
competition act,2002
Nutan kumar vs additional district judge(2002)
Agreement of lease b/w landlord & tenant for occupying a building in
contravention of RENT ACT,1972- not void- tenant cant be ejected BECAUSE
no provision in the UP act bars the landlord, tenant to enter into a tenancy
contract. Bc unless the statute specifically provides that a contract contrary to the
provisions of the statute would be void, would remain binding b/w parties and
would be enforced b/w parties themselves

 If permitted, would defeat the provisions of any law

If performance is impossible, except by disobedience by law–if the real intention of

parties is to defeat the provisions of law-put aside the said contract
Fateh Singh vs Sanwal Singh
Appellant req by Magistrate to furnish sureties of good behavior-respondent agreed to
become the surety after payment is made to him by appl- appl din’t do anything to forfeit
security-surety came to end-appl applied to recover the amt from resp- refused to grant
relief- if surety is deposited by , or in behalf of the person himself-surety is in just name
BOI Finance ltd vs Custodian
If ROI prohibits or cautions the banking companies from entering into any particular
transactions-binding on all banks & to be compiled with

 Fraudulent

Deliberate misrepresentation, when the parties agree to impose a fraud on a third

person, their agreement is void & unlawful-object of the contract-unlawful, not
enforceable
In pari delicto(two or more ppl are all at fault) is not applicable

 involves/implies injury to person, property of another

When consideration or object is unlawful when it involves or implies injury to the person
or property to another

 Court regards it as immoral, or opposed to public policy

Immoral-varying context-in indian law its only sexual acts

Public policy- public interest-unruly horse-notions might change
 BalVijli vs Nansa Nagar-woman given money to divorce husband and then marry
promisor– not entitled to recover money
An agreement to lend money to a wife to give it to her husband in lieu of divorce is also
immoral and void

 Trading w/ enemy
 Trafficking of public offices

R. Rajashekhar vs Trinity House BUilding-estate agent agreed to act as a middleman

& influenced the statutory authority to ensure the land- as opposed to public policy to
influence public offices- no compensation to the plaintiff

 Bribery
 Interference in course of justice

V. Narasimha Raju vs Gurumurthy Raju- agreement made by parties for stifling

prosecution are not enforced by courts-opposed to public policy

 Champerty & Maintenance

Maintenance- interference of 3rd party to propel a lawsuit with a malicious intent

Champerty- maintenance on the foremost condn that the proceeds of lawsuit has to be
shared

 Marriage brokerage contracts

 Unfair, unreasonable dealings

Central Inland Water Transport vs Brojonath Ganguly

is an unconscionable term void? There wasn’t any reasonableness in terms of the
contract
Gherulal Parekh vs Mahadeodas-appellant and respondent entered into a contract for
the sale & purchase of wheat with other firms on the condn that Respondent will enter a
contract on behalf partnership and profit & loss will be distributed equally-transaction
resulted in loss-paid by respondent-when respond asked appl for sharing liability, appl
refused
promise to provide cash of money upon determination of an unsure event-idea of wager-
void- both parties must suffer from the mistake of fact

A , being an agent, agrees for money w/o the knowledge of his principal to obtain for B a
lease of land belonging to his principle-fraud by concealment by A on the principal

SEC 24- if any 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 manufacturer of indigo, and illegal
traffic in other articles. B promises to pay A a salary of 10k rupees a year. The
agreement is void, the object of A’s promise and the consideration for B’s promise, being
in part unlawful
Alice Mary Hill vs William Clarkee- plaintiff was offered money to commit adultery and
also to look after the defendant’s house. The court declared the whole agreement void
as the distinction b/w lawful and unlawful object wasn’t clear
 Doctrine of Severability-any provision or a portion of law that's inconsistent or offensive
with the fundamental rights shall be declared as void and not the whole act/statute
Sec 26- agreement in restraint of marriage, void- every agreement in restraint of the
marriage of any person other than a minor, is void. Partial restraint doesn’t apply to sec
26
Rao Rani vs Gulab Rani, ILR 1942 All 810
Out of 2 widows, if one chooses to marry ,she’ll not be entitled to deceased husband’s
property-condnl bar on marriage- widow electing to remarry shall forfeit her right to
property- she isn’t being restrained to get married rather she loses her right to property
Sec 27- agreement in restraint of trade, void- restrained from exercising a lawful
profession, trade or business, is to that extent, void
If one/both parties limit their freedom to work or carry on their profession/business in
some way- partial/absolute both are void
Madhub Chandra vs Raj Coomar Das- defendant faced competition from plaintiff due
to which he incurred a heavy loss-both parties got into a contract- terms of contract that
if plaintiff closes his business then the defendant would pay him the advance money.
Later on defendant refused to give him money- court held that this agreement entered
by both parties in the present case is a complete restraint of trade making it void and not
enforceable
Gujarat Bottling Co. ltd vs Coca Cola–Coca Cola asked GBC to restrain from dealing
w/ any other company while being in contract with it- franchisee agreement with mutual
consent- mutual benefit- not void until agreement is void-sec 27 not held
Nordonfelt vs Maxim Nordenfelt Guns & Ammunition Co. Ltd
The contract had the plaintiff not practice the same trade for 25 years and the restraint
extended to every part of the globe-court said it is valid-as the defendant had a global
presence
It would be unreasonable if the contract was for a lifetime
EXCEPTIONS-
1. Saving of agreement not to carry on business of which good-will is sold- seller of
company-buyer- seller agrees not to carry on a similar business within specified
local limits as long as the buyer deriving the title to the good-will, carries on a like
business
2. Section 36 of Partnership Act, 1932- clause 2
3. Judicial exceptions-trade combination, exclusive dealing agreements
4. Restraint upon employees- trade secrets can't be disclosed- not join the
competitor till the time employment contract hasn’t expired
SEC 28- Agreement in restraint of legal proceedings, void-
 Restricted absolutely from enforcing his rights under or in respect of any contract or
which limits the time within which he may thus enforce his rights–this is void
 Extinguishes the rights of any parties or discharges any party from any liability to restrict
any party from enforcing his rights is void
SEC 29- Agreements void for uncertainty, void- agreements, the meaning, of which is not
certain or capable of not being made certain,is void
Hundred tons of oil-void for uncertainty 100 tons of oil- enforceable
agreement to agree in future are also void since there's no surety if parties will agree
Guthing vs Lynn - a certain horse being brought for a certain price and a promise of paying 5
euros more if the horse was lucky was made- luckiness is uncertain so void
Baldeo Prasad vs Miller —Owner of indigo factory mortgaged to B all the indigo cakes that
might be manufactured by the factory from the crops grown on the land of the factory form the
date of mortgage up to the date of payment of the mortgage debt– uncertain so void
 SEC 30- Agreements by way of wager void- no suit shall be brought for recovering
anything alleged to be won on any wager, or entrusted to any person to abide the result
of any game or other uncertain event on which any wager is made
Exception-certain prizes for horse racing
Wager is a promise to give money/ money’s worth upon the determination of
ascertainment of an uncertain event.
essential features-
 Mutual chance of gain and loss
 Determination of result should be beyond parties control
 Money involved should be of parties
 Should only be two parties
 Only interest of the parties should be the sum involved
Babasaheb vs Rajaram
2 wrestler-match-not appearing-rs. 500-winner-Rs 1125- defendant failed to appear-plaintiff
sued for Rs. 500-held that its not looked upon as wagering in law-essence of wager that each
side should stand to win or lose- in this side neither side stood to lose according to the result of
the parties wrestling match
SECTION 31- contingent contract is a contract to do or not to do something, if some event,
collateral to such contract, does or doesn’t happen
Liability to perform the promise depends upon some collateral event which may or may not
happen–Conditional contract & the conditions are of uncertain nature-then only contract is truly
contingent
Example- Contract of insurance , life insurance
Performance of the contract is tied to the event, though it may be collateral to the contract- its
not contingent merely because it is only performed on the happening of a certain future event.
For it to be a contingent contract, the event may or may not happen as well as an event to take
place in future.

Bashir Ahmed vs Govt of AP-respondent bought a book for starting a medical company, only
a part payment was made, company couldn’t be started, an absolute contract not a contingent
contract
SECTION 32- enforcement of contingent contract cant be enforced by law unless and until that
event has happened– contract becomes void if the contingent event becomes impossible–ex-A
contracts to pay B a sum of money when B maries C. but C dies without being married to B-
contract is void- parties under no obligation till such event occurs
Krell vs Henry-Room rented to watch coronation procession of the king-procession didn’t
happen-held contract frustrated
SECTION 33-Contingent contracts to do or ot to do anything if an uncertain future event doesn’t
happen can be enforced when the happening event becomes impossible and not before
ex-A agrees to pay B if a certain ship sinks-ship sunk-contract can be enforced when the ship
sinks
When the performance of a contract depends upon the non-happening of an event, naturally
the parties have to wait till the happening of that event becomes impossible
SECTION 34- A agrees to pay B if B marries C– C marries D– marriage of B to C now
considered impossible although its possible that D may die and C may afterwards marry B
If the event is linked with the future conduct of a person, the event shall be considered
impossible if the person acts in such a way that makes the future conduct impossible
Frost vs Knight- defendant married another woman even though he promised plaintiff’s father
that he will marry plaintiff- marriage to plaintiff now becomes impossible- plaintiff entitled to sue
him for breach of contract
SECTION 35- contingent contract become void if, at the expiration of time, the even has not
happened of before the fixed time, event becomes impossible
Ex- A promises to pay B if ship returns in a year. If the ship doesn’t return in a year-void
If ship got burnt- void,
SECTION 36-Contingent agreements, if an impossible event happens, are void-whether the
impossibility of event is known or not to the parties to the agreement at the time it was made
EX- A agrees to pay B if B married C. C is dead at engagement- void

Discharge by performance -on discharge of contract, the contractual

relationship b/w parties ceases to exist-a contract once entered needs to be performed-
even in case of death of contracting party, promises shall be performed by her legal
representatives unless contrary intention intention appears from the contract
It may happen that the promisor offers performance of her obligation however the
promisee refuses to accept the performance- its for the promisee to accept the
performance-promisor is not responsible for non-performance, nor does she lose her
rights under the contract-Section 38
An offer to one of the several joint promisees has the same consequences as an offer to
all of them

Clayton’s Rule- when the money is paid, it is to be applied according to the will of the
payer and not the receiver. If the party, to whom the money is offered, does not agree to
apply it according to the will of the party offering it, he must refuse it and stand upon the
rights which the law has given him—presumed that the money paid first into the account
is the money first paid out of it.

Discharge by agreement or consent- Novation, alteration, rescission - Section 62-if the

parties agree to substitute a new contract for it, or to rescind{ canceling a contract and
treating as though it never existed, ensuring all its effects are eliminated} or alter it, the
original contract need not be performed-novation, rescission or alteration cannot be
effected unilaterally by one party & requires the consent of both the parties
Novation- the substitution of a new contract for the existing one-acts as a discharge of
contract-intention of the parties to supersede the old contract by a new one
Alteration- change in one or more of the terms of a contract with the consent of all the
parties-some addn, alteration, modification, subtraction of some term or clause-contract
remains same
Rescission- cancellation of contract-can be rescinded b4 the performance becomes due
Remission & Waiver- Section 63-rights and obligations are waived, wholly or in part
Lapse of time - Section 55- when a party to a contract promises to do something at or
before a specified time, and fails to do so at or before the specified time, becomes
voidable at the option of promisee, if the intention of the parties was that time should be
of the essence of the contract
The promisee can take delivery under protest that he will claim compensation
If the promisee doesn’t accept performance
Effect of such failure when time is not essential- if the intention of the party wasn’t that
time should be of essence of the contract-contract doesn’t become voidable by the
failure to complete the promise by a specified time— but promisee is entitled to
compensation from the promisor for any loss occasioned to him by such failure
Effect of acceptance of performance at time other than agreed upon- if the contract can
become voidable on account of the promisor’s failure to perform his promise at the
 agreed time, the promisee accepts performance of such person at any time other than
that agreed, the promisee cannot claim compensation of any less faced by the non-
performance of the promise, unless at the time of acceptance, he gives notice to the
promise of his intention to do so.

Operation of law - contractual duties of the parties are terminated due to the involvement
of the law

Discharge by impossibility of performance- Doctrine of Frustration -Section 56

Contract to do an act impossible in itself is void- where a contract becomes impossible to
perform due to unforeseeable events, the parties would be discharged from their
obligations and liabilities- what is impossible doesn’t create obligations
Sec 56(1) declares an act which is impossible to be done right from the beginning or
inception of the agreement, is a void agreement- Initial Impossibility
Sec 56(2) covers cases where there is a valid contract in the beginning but due to some
unforeseen events, performance becomes impossible subsequently-frustration-
impossibility
Sec 56(3) covers cases where one party knew or with reasonable diligence might have
known of impossibility of performing of the promise–instead of setting the parties free,
the party who knew/ promisor must make compensation to the other party/ promisee for
any loss on account of non-performance
Grounds of frustration-
1. Destruction of subject matter
2. Change of circumstances
3. Death or incapacity of the party govt
4. Legislative intervention’
5. War
However, commercial difficulty doesn’t mean impossibility of act-doctrine of frustration is not
applied
Ganga Saran vs Ram Charan Ram Gupta- contract of sale of certain quantities of cotton
manufactured by victoria Mills- respondents agreed to procure cotton form the mill and sell it to
appellants- VM unable to supply cotton to the respondents-respondents plead frustration– held
that performance didn’t become impossible as the respondents could procure similar quantities
from another mill and deliver it to the appellants-object wasn't Victoria MIll- object was the
delivery of certain quantities of cotton irrespective

Punj Sons Pvt Ltd vs UOI

Petitioner got in a contract with the respondent where the containers were to be coated by a
certain coating- petitioner wrote to the Dir of Gen Suppl requesting the release order of tin
ingots-failed to permit the order- respondent said the request could be on an ex gratia basis if it
reduced the price- petitioner said they can't offer any price reduction- respondent canceled the
order and sought damages
Held that due to non-availability of tin ingots, the contract becomes impossible to perform-
beyond the promisor’s control- contract becomes void when act becomes impossible or unlawful
Departure from the absolute contract theory- frustration is a departure from the “absolute
contract theory”{ person is bound to perform the obligation they’ve undertaken}-too harsh to be
just and fair
Taylor vs Caldwell- music hall hired by plaintiff for concert-engulfed by fire b4 the concert-
plaintiff sued the defendant for loss- since the subject matter- music hall was destroyed-
performance becomes subsequently impossible
Satyabrat Ghosh vs Mugneeram Bangur & Co
The plaintiff purchased a plot from the defendant on deposit. Govt took some parts of the
land(for some time) by the state for military purposes in the wake of the World War 2-defendant
argued frustration of contract- company/defendant decided to treat the contract as canceled- 2
options- first to take back the deposit or second to buy the entire amount to the company once
the war is over
Held- contract wasn’t frustrated as requisition of land was temporary-can neither said to be a
frustrating event nor does it upset the object which the parties to the contract had in view
 A contract may be temporarily suspended if certain events impede performance but if
the power of performance is wholly swept away with no prospect of restoration, the
contract is considered dissolved

Practical Impossibility
Krell vs Henry- defendant agreed to hire a flat from plaintiff for 2 days due to the coronation
that was going to pass along it. But the coronation was canceled- frustrated due to the non-
happening of the coronation

Discharge by breach of contract- actual and anticipatory-

Occurs when a party renounces her liability under the contract, or by her own act makes
it impossible to perform her obligations, or totally or partially fails to perform the
obligations under the contract
 Actual breach- party refuses to perform her part of the obligation on the due date
or performs incompletely or not according to the terms of the contract
 Anticipatory breach- section 39- takes place before the date for performance
fixed by the parties-the breach may be committed by the party either expressly
by making a communication to the promisee about this intention or in an implied
manner by disabling himself for the performance-contract becomes void at the
option of the promisee
In cases of breach of contract, the failure to perform the contract must be due to
willful intent rather than impossibility- breach of contract entitles the innocent
party to maintain a action for damages

Avery vs Bowden- a charter party provided that a ship should proceed to Odessa and there
takes a cargo from the charterer’s agent-ship arrived at Odessa-master demanded a cargo but
agent couldn’t provide one- the ship’s master continued to ask for one-war broke out-charterer
sued
Held- if the agent’s conduct amounted to anticipatory breach of contract, the master had elected
to keep the contract alive until it was discharged by frustration on the outbreak of war

Robinson vs Davidson- a contract by a pianist to perform on a specific day was held to be

frustrated when the said pianist became too ill to perform

FA Tamplin vs Anglo Mexican- the chartered hired an oil tank for 5 years- after 2.5 yrs it got
requisitioned by the British Govt-the Brit Govt made some structural changes in the ship-the
shipowners claimed that the requisition and alterations determined the ship
Held- the contract wasn’t terminated by the requisition and alterations made by the Brit Govt-
contract could only be dissolved if the power of performance was wholly swept away with not
prospect of restoration
Bhudra Chand vs Betts- the def promised to deliver an elephant to the plaintiff on 1st Oct but
he obtained an extension of the time till 6th Oct. Yet he didn’t deliver till 11th. The plaintiff
refused to accept the elephant and sued for damages. Held- Plaintiff entitled to recover
damages since it was proved that time was the essence of the contract since the def had tried
to obtain an extension of time.

Hochster vs De La Tour- De La Tour made an agreement to employ Mr Hochster to travel with

him on 1st June. On 11th May, De La Tours wrote to Hochster informing them that they no
longer require his services. The plaintiff brought an action of damages for anticipatory breach of
contract. The def argued that he could not bring an action before the date on which the contract
was due to commence.
Issue- #whether a party’s refusal to perform the agreement b4 the date of commencement
entitled the other party to damages, #whether this breach is actionable before the date on which
the contract was due to commence
Held- when a contract provides for a promise for future conduct, a party refusing to perform the
agreement, thus renouncing the contract, becomes liable for breach of contract.Further, a
contract for future conduct constitutes an implied promise that, in the meantime, neither party
will prejudice the performance of that promise.Also a breach of contract by renouncing the duty
to perform the future obligation immediately renders the party liable to a suit of action for
damages by the injured party. Renunciation of contract of future conduct by one party
immediately dissolves the obligation of the other party to perform the contract, thus leaving “no
reason to wait til the day arrives before seeking his remedy by action The Court awarded
damages to Hochster.

Devanynes vs Noble(Clayton’s Case)- Devaynes(D), the senior partner of a banking firm died
and the firm, a partnership, went bankrupt a year later. A creditor, Calyton(C), sought to reclaim
his bank deposits. At the time of D’s death, C had $1713 in his account. The remaining
partnership had paid Clayton more than $1713 but this did not satisfy the entire amount that
was owed to Clayton, since he made additional deposits after D’s death. Clayton sought a claim
of $453 against D’s estate- the amount of his bank balance following the withdrawal he made
after D’s death and before making any additional deposits.
Held- D’s estate wasn't liable, as the $453 had been fully discharged by the payments made by
the surviving partners to C at the time of D’s death