Void Agreement

 

INTRODUCTION

Section 2(g) of the Indian Contract Act states “that a void agreement is one which is not enforceable by law. A void agreement does not create rights, obligations or duties. It does not give rise to any legal consequences. Such agreements are void ab initio. The court can only enforce those agreements which are according to section 10 of the Indian Contract Act.

The following agreements are declared to be void.

  1. Agreement unlawful in part ( Sec 24)
  2. Agreement without consideration (Sec 25)
  3. Agreement in restraint of Marriage ( Sec 26)
  4. Agreement in restraint of trade (Sec 27)
  5. Agreement in restraint of legal proceedings ( Sec 28)
  6. Uncertain agreement (Sec 29)
  7. Wagering agreement (Sec 30)
  8. Agreement to do an impossible act (Sec 56)

AGREEMENT UNLAWFUL IN PART

Section 24 says, Agreement is void, if consideration and object unlawful in part- if any part of a single consideration for one or more object, or any one or any part of one of several consideration for a single object is unlawful, the agreement is void. The provisions in the section is a natural effect of the principle of illegality laid down by Section 23 comes into play when a part of consideration for an object or more than one object of an agreement is unlawful. The whole of the agreement would be void unless the unlawful portion can be severed without damaging the lawful portion.

AGREEMENT WITHOUT CONSIDERATION IS VOID:

An agreement without consideration is void unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law.

AGREEMENT IN RESTRAINT OF MARRIAGE (Section 26)

Section 26 states that every agreement in restrain of marriage of any person, other than a minor, is void. The restraint may be total or partial i.e. the party may be restrained from marrying at all, or from marrying for a fixed period, or from marrying a particular person, or a class of persons, the agreement is void. The only exception is in favor of a minor.

AGREEMENT IN RESTRAINT OF TRADE (Section 27)

Section 27 provides: agreement in restraint of trade is void. Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Freedom of trade is a fundamental right of the citizens and it cannot barter it away by agreement. In Nordenfelt vs. Maxim Nordenfelt Guns and Ammunities Co. Ltd (1894) AC 535. It was held that restraint of trade is void but it can be justified if the restraint is reasonable, in the interest of the parties and reasonable in the public interest. The restriction should be so framed and guarded as to afford adequate protection to the party in whose favour it is imposed while at the same time it is no way injurious to the public.

EXCEPTION

The only exception mentioned in Section 27 of the contract Act is that relating to the goodwill. It says one who sells goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein: provided that such limits appear to the court reasonable, regard being had to the nature of the business.

The object is to protect the interest of purchaser of goodwill. Some restriction on the liberty of the seller becomes necessary because restriction is the only “means by which saleable value is given to the goodwill of a business”.

 RESTRICTIONS OF LEGAL PROCEEDINGS

In English Law it is well known rule that “an agreement purporting to oust the jurisdiction of the courts is illegal and void on grounds of policy”. In India Section 28 of the Indian Contract Act renders void two kinds of agreements, namely,

  1. 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
  2. An agreement, which limits the time within which the contract rights may enforced.

Section 28 says: Every agreement

  1. By which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights
  2. Which extinguishes the rights of any party thereto, or discharges any party thereto from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any part from enforcing his rights, is void to that extent.

EXCEPTION

  1. This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
  2. Nor shall this section render illegal any contract in writing by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law if force for the time being as to references to arbitration.

UNCERTAIN AGREEMENTS

Section 29 talks about Agreement void for Uncertainty:

Agreement the meaning of which is not certain, or capable of being made certain are void. For example, A agrees to sell B “my white horse for rupees five hundred or rupees one thousand”. There is nothing to show which of the two prices was to be given. The agreement is void. An agreement to agree in the future is void, for there is no certainty whether the parties will be able to agree.

AGREEMENT TO DO AN IMPOSSIBLE ACT

Section 56 says that, an agreement to do an act impossible in itself is void. Contract to do act afterwards becoming impossible or unlawful. A contract to do an act which, after contract is made, becomes impossible or, by reason of some event which the promisor could prevent, unlawful, becomes void when the act becomes impossible or unlawful

Compensation for loss thorough non- performance of act known to be impossible or unlawful: where one person has promised to be something which he knew or, with reasonable diligence, might have known, and which the promisee did not know to be impossible or unlawful, such promise must make compensation to such promisee for any loss which such promisee sustains through the non- performance of the promise.

ILLEGAL AND VOID AGREEMENTS

The Contract Act draws a distinction between an agreement which is not only void and the one which the consideration or object is also unlawful. An illegal agreement is one, which is actually forbidden by the law ( section 23) but a void agreement may not be forbidden, the law may merely say that if it is made, the courts will not enforce it ( section 25 to 30). Thus, every illegal agreement is also void but a void agreement is not necessarily illegal. Another similarity between an illegal and void agreement is that in either case the main or the primary agreement is unenforceable.

 

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