Other Essential Elements of Contract unit 3

Question 1

Capacity to Contract

Answer 1

“Capacity” refers to the competence of the parties to make a contract.

Who is competent? :-
According to section 11, Every person who
* has attained the age of majority,
* is of sound mind and
* is not otherwise disqualified from contracting,
* is competent to contract

In other words, following persons to be incompetent to contract:
* Minors,
* Persons of unsound mind, and
* Persons disqualified by any law of which they are subject

Question 2

Minor

Answer 2

As per Indian Majority Act of 1875, a minor is a person who has not completed 18 years of age.

Question 3

Position of Contract with Minor

Answer 3

1. A contract made with or by a minor is void-ab-initio
2. No ratification after attaining majority
3. Minor can be a beneficiary or can take benefit out of a contract:
4. A minor can always plead minority:
5. Contract for supply of Necessaries:
6. He cannot enter into a contract of partnership:
7. He cannot be adjusted insolvent :
8. Minor cannot bind parent or guardian:
9. Minor can be an agent:
10. Joint contract by minor and adult:
11. Surety (Guarantor) for a minor:
12. Minor as Shareholder:
13. Liability for torts:

Question 4

1. A contract made with or by a minor is void-ab-initio

Answer 4

A minor is not competent to contract and any agreement with or by a minor is void from the very beginning.

case law [Mohori Bibi v. Dharmodas Ghose]

Question 5

2. No ratification after attaining majority:

Answer 5

A minor cannot ratify the agreement on attaining majority as the original agreement is void ab initio.

യഥാർത്ഥ കരാർ അസാധുവായതിനാൽ പ്രായപൂർത്തിയാകാത്ത ഒരാൾക്ക് ഭൂരിപക്ഷം നേടുന്നതിനുള്ള കരാർ അംഗീകരിക്കാൻ കഴിയില്ല.

Question 6

3. Minor can be a beneficiary or can take benefit out of a contract:

Answer 6

• It means promisory notes executed in favour of minor is valid
• contract act do not prevent minor from taking benefit

Question 7

4. A minor can always plead minority:

Answer 7

A minor can always plead minority and is not stopped to do so even where he has taken any loan or entered into any contract by falsely representing that he was major.

പ്രായപൂർത്തിയാകാത്ത ഒരാൾക്ക് എല്ലായ്‌പ്പോഴും ന്യൂനപക്ഷത്തോട് വാദിക്കാൻ കഴിയും, അവൻ ഏതെങ്കിലും വായ്പ എടുത്തിട്ടോ അല്ലെങ്കിൽ താൻ പ്രധാനിയാണെന്ന് തെറ്റായി പ്രതിനിധീകരിച്ച് ഏതെങ്കിലും കരാറിൽ ഏർപ്പെട്ടിട്ടോ പോലും അങ്ങനെ ചെയ്യുന്നത് നിർത്തില്ല.

Question 8

5. Contract for supply of Necessaries:

Answer 8

Minor is liable to pay out of his property for the necessaries supplied to him by the other. Necessary may be about necessary goods (e.g. food, cloths etc.) and services (e.g. education etc.)

Question 9

6. He cannot enter into a contract of partnership:

Answer 9

A minor being incompetent to contract cannot be a partner in a partnership firm, but under Section 30 of the Indian Partnership Act, he can be admitted to the benefits of partnership.

Question 10

7. He cannot be adjusted insolvent:-

Answer 10

because of incapability of contracting debts.

Question 11

8. Minor cannot bind parent or guardian:

Answer 11

• In the absence of authority, express or implied, a minor is not capable of binding his parent or guardian, even for necessaries.
• The parents will be held liable only when the child is acting as an agent for parents.

Question 12

9. Minor can be an agent:

Answer 12

• A minor can act as an agent
• But he will not be liable to his principal for his acts.

Question 13

10. Joint contract by minor and adult:

Answer 13

The adult will be liable on the contract and not the minor.

Question 14

11. Surety (Guarantor) for a minor:

Answer 14

• A minor cannot be surety as he is not liable to pay under a contract.
• Where an adult stands surety for a minor, the adult is liable to third party.

Question 15

12. Minor as Shareholder:

Answer 15

• a minor cannot be a share holder of the company
• a minor, acting though his lawful guardian become a shareholder by transfer or transmission of fully paid shares to him.

Question 16

Liability for torts:

Answer 16

• minor is liable for torts
• but not liable for breach of contract

Question 17

Person of Sound Mind

Answer 17

Sec. 12: “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.”

Question 18

Types of Persons of Unsound Mind & Rules

Answer 18

1. Idiots
2. Lunatic
3. Drunken or intoxicated persons

Question 19

Idiots

Answer 19

• An idiot is a person who has completely lost his mental powers.
• Contract with this person is void.

Question 20

Lunatic

Answer 20

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

Burden of Proof
* the burden of proving of sound mind at the time of contract
lies on the person who affirms it.

Question 21

Drunken or intoxicated persons

Answer 21

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

Burden of Proof:
the burden of proving of sound mind at the time of contract lies on the person who affirms it.

Question 22

Contract By Disqualified Persons

Answer 22

(i) Alien Enemy.
(ii) Foreign sovereigns(Rulers), their diplomatic
staff and representatives of foreign States.
(iii) Corporations.
(iv) Insolvents
(v) Convicts

Question 23

(i) Alien Enemy.

Answer 23

A person who is citizen of a foreign country which is at war with India.

(a) Contracts made during the war.
During the continuance of war an alien can neither contract with an Indian citizen nor he can sue in an Indian court.

(b) Contract made before the war.
These contracts may either be suspended or dissolved. All contracts which are against the public policy or are such that may benefit the enemy stand dissolved.

Question 24

(ii) Foreign sovereigns(Rulers), their diplomatic staff and representatives of foreign States.

Answer 24

They can enter into contracts and enforce those contracts in our Courts. But an Indian citizen has to obtain a prior sanction of the Central Government in order to sue them in our law Courts.

Question 25

(iii) Corporations.

Answer 25

The contractual capacity of a statutory corporation is limited by the Statute governing it.

Question 26

(iv) Insolvents.

Answer 26

When a debtor is adjudged insolvent he is deprived of his power to deal in his property divisible among his creditors.

Question 27

(v) Convicts.

Answer 27

A convict when undergoing imprisonment is incapable of entering into a contract.

തടവുശിക്ഷ അനുഭവിക്കുമ്പോൾ ഒരു കുറ്റവാളി ഒരു കരാറിൽ ഏർപ്പെടാൻ കഴിവില്ല.

Question 28

1. Every person is competent to contract who is of the:

a) age of majority
b) age of minority
c) sound reputation
d) sound financial position

Answer 28

a) age of majority

Question 29

2. A drunken or intoxicated person is not competent to contract as he falls in the category of:

a) persons disqualified by law
b) persons of unsound mind
c) persons discarded by society
d) enemies of society.

Answer 29

b) persons of unsound mind

Question 30

3. On attaining the age of majority, an agreement entered into during his minority:

a) becomes voidable
b) becomes valid
c) can be ratified by him
d) cannot be ratified by him.

Answer 30

d) cannot be ratified by him.

Question 31

4. A minor ______

a) can be declared as insolvent.
b) cannot be declared as insolvent.
c) can be declared insolvent for limited purpose.
d) is regarded as insolvent under law.

Answer 31

b) cannot be declared as insolvent.

Question 32

5. A contract made by an idiot is _____

a) valid
b) void
c) voidable
d) illegal

Answer 32

b) void

Question 33

6. A person below ______ is minor for the purpose of entering into a contract:

a) 15 years
b) 17 years
c) 18 years
d) 21 years.

Answer 33

c) 18 years

Question 34

Consent Sec.13

Answer 34

• “Two or more persons are said to consent when they agree upon the same thing in the same sense.” (Consensus-ad-idem)
• When there is no consent, there is no contract.

Question 35

Free Consent (Sec.14)

Answer 35

Consent is said to be free when it is not caused by—
(1) Coercion Sec. 15, or
(2) Undue influence Sec. 16, or
(3) Fraud Sec. 17, or
(4) Misrepresentation Sec. 18, or
(5) Mistake, subject to the provisions of Sec. 20, 21 and 22

Question 36

Coercion (Sec.15)

Answer 36

The consent is said to be caused by coercion when it is obtained by :

(a) Committing or threatening to commit any act forbidden by Indian Penal code,
(b) Unlawful detaining or threatening to detain any property.

സമ്മതം ലഭിക്കുമ്പോൾ നിർബന്ധം മൂലം ഉണ്ടായതാണെന്ന് പറയപ്പെടുന്നു:

(എ) ഇന്ത്യൻ ശിക്ഷാനിയമം നിരോധിച്ചിട്ടുള്ള ഏതെങ്കിലും പ്രവൃത്തി ചെയ്യാൻ പ്രതിജ്ഞാബദ്ധമാക്കൽ അല്ലെങ്കിൽ ഭീഷണിപ്പെടുത്തൽ,
(ബി) നിയമവിരുദ്ധമായി തടങ്കലിൽ വയ്ക്കുകയോ ഏതെങ്കിലും വസ്തുവകകൾ തടഞ്ഞുവയ്ക്കുമെന്ന് ഭീഷണിപ്പെടുത്തുകയോ ചെയ്യുക.

Question 37

Consequences of coercion (Sec. 19)

Answer 37

(i) Contract is voidable at the option of party whose consent was so caused.
(ii) Person to whom money is paid or thing delivered under coercion must repay or return it.

Burden of Proof :-
Lies on the aggrieved party that his consent is not free.

(i) സമ്മതത്തിന് കാരണമായ കക്ഷിയുടെ ഓപ്ഷനിൽ കരാർ അസാധുവാണ്.
(ii) പണം നൽകിയതോ നിർബന്ധിതമായി കൈമാറിയതോ ആയ വ്യക്തി അത് തിരിച്ചടയ്ക്കുകയോ തിരികെ നൽകുകയോ ചെയ്യണം.

തെളിവിന്റെ ഭാരം:-
തന്റെ സമ്മതം സൗജന്യമല്ലെന്ന് ആക്ഷേപിച്ച കക്ഷിയുടെ മേൽ കള്ളം പറയുന്നു.

Question 38

Threat to Commit Suicide—is it coercion?

Answer 38

• Suicide through forbidden by Indian Penal Code is
  for obvious reason not punishable.
• A dead person cannot be punished.
• But Sec. 15 declares that committing or threatening to commit any act forbidden by Indian Penal Code is coercion.
• Hence a threat to commit suicide will be regarded as coercion.

Question 39

Undue Influence (Sec.16)

Answer 39

“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 of the
other”.

Question 40

Essential ingredients under this provision

Answer 40

(1) Relation between the parties:
(2) Position to dominate the will:
(a) Real and apparent authority:
(b) Fiduciary relationship:
(c) Mental distress:
(3) The object must be to take undue advantage:

Question 41

(1) Relation between the parties:

Answer 41

• A person can be influenced by the other
• when a near relation between the two exists.

Question 42

(2) Position to dominate the will:

Answer 42

Relation between the parties exist in such a manner that one of them is in a position to dominate the will of the other. A person is deemed to be in such position in the following circumstances:

കക്ഷികൾ തമ്മിലുള്ള ബന്ധം നിലനിൽക്കുന്നത് അവരിൽ ഒരാൾ മറ്റേയാളുടെ ഇഷ്ടത്തിന് ആധിപത്യം സ്ഥാപിക്കുന്ന തരത്തിലാണ്. ഇനിപ്പറയുന്ന സാഹചര്യങ്ങളിൽ ഒരു വ്യക്തി അത്തരം സ്ഥാനത്താണെന്ന് കണക്കാക്കുന്നു:

Question 43

(a) Real and apparent authority:

Answer 43

Master and servant, doctor and patient and etc.

Question 44

(b) Fiduciary relationship:

Answer 44

Father and son, solicitor and client, husband and wife, creditor and debtor,

Question 45

(c) Mental distress:

Answer 45

Where the mental capacity of the person is temporarily or permanently affected by the reason of mental or bodily distress, illness or of old age.

Question 46

(3) The object must be to take undue advantage:

Answer 46

Where the person is in a position to influence the will of the other in getting consent, must have the object to take advantage of the other

Question 47

Undue Influence (Sec.16)

Answer 47

Consequences of Undue Influences (Sec. 19A)

(i) Contract is voidable at the option of party whose consent was so caused.

(ii) Such contract may be set aside either absolutely or if the party who is entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the court may seem just and equitable.

Burden of Proof :
The burden of proving the absence of the use of the dominant position to obtain the unfair advantage will lie on the party who is in a position to dominate the will of the other.

Question 48

Distinction between Coercion and Undue Influence

Answer 48

Basis Coercion and undue influence
1. Section
* Defined in Sec.15 * Defined in Sec.16
2. Nature
* Involves physical force or threat * Involves moral pressure.
3. Relationship
* Relationship between parties is not necessary * Some sort of relationship must exist between the parties.
4. Consent Obtained
* Consent is given under the threat of an offence * Consent is obtained by dominating the will, no offence is committed.
5. Exercise by whom
* It may move even from a stranger * It employed by the party to contract

Question 49

1. The term ‘consent’ is defined in section

a. 12
b. 13
c. 14
d. 15

Answer 49

b. 13

Question 50

2. A threatens to kill B if he does not sell his scooter to him for Rs.1000 only. Here B’s consent is obtained by ______

a. undue influence
b. coercion
c. fraud
d. none of these

Answer 50

b. coercion

Question 51

3. Undue influence is kind of _______

a. mental coercion
b. physical coercion
c. both of these
d. none of these

Answer 51

a. mental coercion

Question 52

4. The fiduciary relations means relationship of _____

a. Trust and confidence
b. senior and junior
c. none of these
d. both of these

Answer 52

a. Trust and confidence

Question 53

5. Threat to commit suicide amounts to ____

a. Undue Influence
b. Coercion
c. Fraud
d. Misrepresentation

Answer 53

b. Coercion

Question 54

6. To Undue Influence, some sort of relationship between parties ______

a. Necessary
b. Not necessary
c. Identified
d. Presumed

Answer 54

a. Necessary

Question 55

Fraud (Sec.17)

Answer 55

“Fraud” means and includes any of the following acts committed by a party to a contract, or by his agent with intent to deceive or to induce a person to enter into a contract :

1. The suggestion that a fact is true when it is not true and the person making the suggestion does not believe it to be true;
2. The active concealment of a fact by a person 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.

Question 56

Essential Elements of Fraud

Answer 56

(1) There must be a representation or assertion and it must be false:-
Mere silence as to facts is not fraud.

Note. Silence amounts to fraud where
(i) There is a duty to speak.
(ii) His silence is speech.

(2) The representation or assertion must be a fact
(3) The representation must have been made with a knowledge of its falsity or without belief in its truth.
(4) The other party must have been induced to act upon the representation or assertion.
(5) The other party must have relied upon the representation and must have been deceived.
(6) The other party:-
acting on the representation or assertion, must have subsequently suffered some loss.

Question 57

Consequences of Fraud

Answer 57

• A contract induced by fraud is voidable at the option of the party defrauded.
• Until it is avoided, it is valid.
• The party defrauded has, however, the following remedies :
  1. He can rescind the contract.
  2. He can insist on the performance of the contract on the condition that he shall be put in the position in which he would have been if the representation made had been true.
  3. He can sue for damages.

Question 58

Contract not necessarily voidable Exceptions

Answer 58

1. Where the consent of a party to a contract was caused by silence amounting to fraud and that party could discover the truth by ordinary diligence.
2. Where the third party has acquired an interest in the property for value.
3. Where the party, after becoming aware of the misrepresentation or fraud

takes a benefit under the contract or in some other way affirms it.

Question 59

Misrepresentation (Sec. 18)

Answer 59

‘Misrepresentation’ is wrong done without intention to deceive.

According to Section 18, there is misrepresentation:

(1) When a person positively states that a fact is true when his information does not warrant it to be so;
(2) When there is a breach of duty by a person without intention to deceive which brings an advantage to him, and loss to the other;
(3) When a party causes the other party to the agreement to make a mistake as to the subject matter

Question 60

Consequences of Misrepresentation

Answer 60

The aggrieved party, in case of misrepresentation by the other party, can
(1) avoid or rescind the contract; or
(2) accept the contract but insist that he shall be placed in the position in which he would have been if the representation made had been true.

Question 61

Distinction between Fraud and Misrepresentation

Answer 61

Basis Fraud and Misrepresentation

1. Section
   * Defined in Sec.17 * Defined in Sec.18
2. Intention
   * To deceive the other party by hiding the truth. * There is no such intention to deceive the other party.
3. Knowledge of truth
   * The person making the suggestion believes that the statement as untrue. * The person making the statement believes it to be true, although it is not true.
4. Claim of damages
   * The injured party can repudiate the contract and claim damages. * The injured party can repudiate the contract but cannot claim damages.
5. Means to discover the Truth
   * The party using the fraudulent act cannot secure or protect himself by saying that the injured party had means to discover the truth. * Party can always plead that the injured party had the means to discover the truth.

Question 62

Mistake (Sec. 20-22)

Answer 62

Erroneous belief about something.

1. Mistake
   a) Mistake of Law b)Mistake of Fact
2. Mistake of Law
   a) Of Country b) Of Foreign Country
3. Mistake of Fact
   a) Bilateral b) Unilateral

Question 63

Mistake of Law

Answer 63

(i) Mistake of law of the country:-
A person cannot be allowed to get any relief on the ground that it had done a particular act in ignorance of law.

(ii) Mistake of law of a foreign country:-
Such a mistake is treated as mistake of fact and the agreement in such a case is void.

Question 64

Mistake of Fact

Answer 64

(i) Bilateral mistake:
Both the parties are under a mistake as to a matter of fact.
Agreement is void

Cases of Bilateral Mistakes:-
(i) Mistake as to the existence of the subject-matter.
(ii) Mistake as to the identity of the subject-matter.
(iii) Mistake as to the quality of the subject-matter.
(iv) Mistake as to the quantity of the subject-matter.
(v) Mistake as to the title of the subject-matter.
(vi) Mistake as to the possibility of performance
(a) Physical impossibility, (b) Legal impossibility.

(ii) Unilateral Mistake:-
Only one party under mistake. Contract is not voidable.

Question 65

1. A promise made without intention of performing it amounts to__________

a. misrepresentation
b. fraud
c. coercion
d. none of these

Answer 65

b. fraud

Question 66

2. Which of the following is not included in the term ‘Fraud’?

a. Concealment of facts in good faith.
b. When the court declares it fraudulent
c. When it is made with intention to deceive
d. Promise made without intention to perform

Answer 66

a. Concealment of facts in good faith.

Question 67

3. A false statement of facts, made without any intention to deceive the other party, falls under the category of ______

a. fraud
b. undue influence
c. coercion
d. misrepresentation

Answer 67

d. misrepresentation

Question 68

4. An agreement for the sale and purchase of horse which, unknown to both the parties was dead at the time of bargain, is ______

a. void
b. valid
c. voidable
d. illegal

Answer 68

a. void

Question 69

5. The aggrieved party i.e., the party whose consent was obtained by fraud, may _______

a. rescind the contract only
b. affirm the contract only
c. rescind or affirm the contract
d. none of these

Answer 69

c. rescind or affirm the contract

Question 70

6. Mistake of Foreign Law is treated in the same
   manner as _____

a. Mistake of Indian Law
b. Mistake of Fact
c. Misrepresentation
d. Fraud

Answer 70

b. Mistake of Fact

Question 71

Unlawful Object And Consideration (Sec. 23)

Answer 71

1. It if forbidden by law.
2. If it is of such a nature that if permitted, it would defeat the provisions of any law.
3. If it is fraudulent
4. If it involves or implies injury to the person or property of another
5. If the Court regards it as immoral
6. Where the courts regards if as opposed to public policy
   (a) Trading with enemy
   (b) Stifling prosecution:-
   It is an agreement to abstain from prosecuting a person for an offence
   (c) Maintenance and Champerty:-
   ‘Maintenance’ is an agreement to give assistance, financial or otherwise, to another to enable him to bring or defend legal proceedings when the person giving assistance has got no legal interest of his own in the subject-matter
   (d) Interference with the course of justice
   (e) Marriage brokerage contracts:
   An agreement to negotiate marriage for reward, which is known as a marriage brokerage contract, is void, as it is opposed to public policy.
   (f) Interest against obligation:
   The following are examples of agreement that are void as they tend to create an interest against obligation. The object of such agreements is opposed to public policy.
   (g) Sale of public offices:
   Agreement for the sale or transfer of public offices and titles or procurement of a public recognition like Padgma Vibhushan or Param Veer Chakra for monetary consideration.
   (h) Agreement for the creation of monopolies:
   Agreements having for their object the establishment of monopolies are opposed to public policy and therefore void.

Question 72

‘Champerty’

Answer 72

is an agreement whereby one party is to assist another to bring an action for recovering money or property, and is to share in the proceeds of the action.

Question 73

Agreements Expressly Declared Void

Answer 73

1. Agreements by incompetent parties (Sec. 11).
2. Agreements made under a mutual mistake of fact (Sec. 20). 3. Agreements the consideration or object of which is unlawful (Sec.23).
3. Agreements the consideration or object of which is unlawful in part (Sec.24):
   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.
4. Agreements made without consideration (Sec. 25).
5. Agreement in restraint of marriage (Section 26):
   Every agreement in restraint of marriage of any person other than a minor, is void. So if a person, being a major, agrees for good consideration not to marry, the promise is not binding (Other than a Child Marriage)
6. Agreement in restraint of trade (Section 27):
   An agreement by which any person is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.
7. Agreement in restraint of legal proceedings (Section 28):
   An agreement in restraint of legal proceeding is the one by which any party thereto is restricted absolutely from enforcing his rights under a contract through a Court or which abridges the usual period for starting legal proceedings. A contract of this nature is void.
8. Agreements the meaning of which is uncertain (Sec.29): Agreements, the meaning of which is not certain, are void (Sec. 29). The uncertainty may be as to (i) existence of, (ii) quantity of, (iii) quality of, (iv) price of, or (v) title to, the subject matter.
9. Wagering agreements or wager (Sec. 30):
   A wager is an agreement between two parties by which one promises to pay money or money’s worth on the happening of some uncertain event in consideration of the other party’s promises to pay if the event does not happen.
10. Agreements to do impossible Acts (Sec. 56)

Question 74

Agreement in restraint of trade (Section 27) Exceptions

Answer 74

But this rule is subject to the following exceptions,
Exceptions to Point No. ‘7’:

(1) Sale of goodwill :
(2) Partner’s agreements:
(3) Trade combination:
(4) Service contracts :

Question 75

(1) Sale of goodwill :

Answer 75

A seller of goodwill of a business may be restrained from carrying on

(i) a similar business,
(ii) within specified local limit,
(iii) provided that such limits appear to the Court reasonable regard being had to the nature of the business.

Question 76

(2) Partner’s agreements:

Answer 76

(a) A partner shall not carry on any business other than that of the firm while he is partner.
(b) An outgoing partner may agree with his partners not to carry on a business similar to that of the firm within a specified period or within specified local limits.
(c) Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits.
(d) Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business. But, subject to agreement between him and the buyer, he may not (i) use the firm name, (ii) represent himself as carrying on the business of the firm, or (iii) solicit custom of persons who were dealing with the firm before its dissolution.
(e) Any partner may, upon the sale of goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits.

Question 77

(3) Trade combination:

Answer 77

Business combination with idea of regulating business and not restraining it have been held to be desirable in public interest.

Question 78

(4) Service contracts :

Answer 78

Sometimes an employee, by the terms of his service agreement, is prevented from accepting -

(i) any other engagement during his employment, and /or.
(ii) a similar engagement after the termination of his services.

• As regards the first restraint:-
  it is valid and is not in restraint of trade if it is to operate while the employee is contractually bound to serve his employer. The doctors, for example, are usually debarred from private practice during the term of their employment.
• As regards the second restraint, it is void.

Question 79

8. Agreement in restraint of legal proceedings (Section 28): exception

Answer 79

However, there are certain exceptions to the above rule:

(i) A contract by which the parties agree that any dispute between them in respect of any subject shall be referred to arbitration and that only the amount awarded in such arbitration shall be recoverable is a valid contract.

(ii) Similarly, a contract by which the parties agree to refer to arbitration any question between them which have already arisen or which may arise in future, is valid; but such a contract must be in writing.

Question 80

Essentials of a wagering agreement:

Answer 80

1. Promises to pay money or money’s worth.
2. Performance must be dependent on an event happening or not happening.
3. Event must be uncertain.
4. Mutual Chances of win or lose.
5. No control over the event.
6. No other interest in the event. That is why a contract of insurance is not a wagering agreement.

Question 81

Effect of wagering agreements:

Answer 81

Wagering agreements are void but not illegal. However in Maharashtra & Gujarat wagering agreements have been declared illegal.

Question 82

Suit to recover money deposited Under Wagering Agreement:

Answer 82

Money deposited with a person (called stakeholder) to be paid to the party winning upon a wager cannot be recovered by the winner. On the other hand, the looser can recover his deposit from the stakeholder. But where the stakeholder pays the money to the winner, the loser cannot recover it from him.

Question 83

Collateral Transaction:

Answer 83

The validity of collateral transaction can not be challenged because the main contract which is a wager & have void. E.g. in a wagering contract the broker is entitled to collect his brokerage.

Question 84

Exception—Following transaction are not wagers:

Answer 84

(i) Game of skill, crossword, picture puzzles or athletic competitions.
(ii) A subscription or contribution or an agreement to subscribe or contribute toward any plate (a cup or other prize for a race or other contest), prize or sum of money of the value of Rs. 500 or above to the awarded to the winner or winners of a horse race.
(iii) Share market transactions in which delivery of stocks and shares in intended to be given and taken.
(iv) A contract of insurance.

Question 85

1. All agreements are contracts only if they are made for lawful consideration and with lawful object. It is given in ______

a) Sec.10
b) Sec. 23
c) Both a & b
c) None of these

Answer 85

a) Sec.10

Question 86

2. A B & C entered into an agreement to carry on some fraudulent business and to share the profit in equal shares. This agreement is ________

a) Valid
b) Void
c) Voidable
d) Contingent

Answer 86

b) Void

Question 87

3. An agreement which prevents a person from marrying a particular person or a person of a particular class, is ______

a) Valid
b) Void
c) Voidable
d) Allowed with court’s permission

Answer 87

b) Void

Question 88

4. An outgoing (i.e. retiring) partner can be restrained from carrying on ______

a) Similar business only
b) Any business
c) Both of these
d) None of these

Answer 88

a) Similar business only

Question 89

5. Regulation as to the opening and closing of business in the market, are ______

a) Not legal
b) Valid
c) Void
d) Illegal

Answer 89

b) Valid

Question 90

6. A agrees to enclose a space between two parallel lines an B Agrees to pay Rs. 5000 to A for this act. This is an agreement to do ____

a) An illegal act
b) An impossible act
c) A wagering act
d) Forbidden act

Answer 90

b) An impossible act