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Mercantile Laws-I

Notes This is because of the fact that essentially, a service bond is a species of contract and the principles
of the law of contracts as to penal stipulations apply to such bonds. Section 74 that only reasonable
compensation can be recovered in case of breach of contract. If the amount specified in the contract

is exaggerated, the court can reduce it.
3.5.3 Restraint of Legal Proceedings (S.28)

Every person has a right to have recourse to the usual legal proceedings. Therefore, s.28 renders
void an agreement by which a party is restricted absolutely from enforcing his legal rights arising
under a contract by the usual legal proceedings in the ordinary tribunals.

Example: A contract contains a stipulation that no action should be brought upon it in case
of breach. Such a stipulation would be void because it would restrict both parties from enforcing
their rights under the contract in the ordinary tribunals.
However, an exception to s.28 provides that an agreement to refer disputes to arbitration is valid
as this stipulation itself would not have the effect of ousting the jurisdiction of the courts.

Examples:

(i) A contract whereby it is provided that all disputes arising between the parties should be

referred to an arbitrator, whose decision shall be accepted as final and binding on both
parties of the contract, is not invalid.
(ii) A contract contains a double stipulation. Firstly, any dispute between the parties would be
settled by arbitration. Secondly, neither party would enforce his rights under the contract

in a court of law. In such a situation, the first stipulation is valid, but the second one is
void.
Ousting the jurisdiction of all other courts except one. The restriction imposed upon the right
to sue should be absolute in the sense that the parties are precluded from pursuing their legal
remedies in the ordinary tribunals. Thus, where there are two courts, both of which have

jurisdiction to try a suit, an agreement between the parties that the suit should be filed in one
of those courts alone and not in the other, does not contravene the provisions of s.28, as it is not
against public policy [Hakam Singh v. Gammon (India) Ltd; A.I.R. 1971 S.C. 740].
Limitation of time. Section 28 renders void another kind of agreement, namely, whereby an
attempt is made by the parties to restrict the time within which an action may be brought so as to
make it shorter than that prescribed by the Limitation Act, 1963.

Example: A clause in an agreement provides that no action should be brought after two
years. However, according to the Limitation Act, 1963, an action for breach of contract may be
brought within three years from the date of the breach. The clause in the agreement is void, as it
is opposed to the provisions of the Limitation Act, 1963.

3.5.4 Uncertain or Ambiguous Agreements (S. 29)

Agreements, the meaning of which is not certain or capable of being made certain, are void.

Example:

(i) A agrees to sell to B 100 tonnes of oil. There is nothing whatever to show what kind of oil
was intended. The agreement is void for uncertainty.

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