Void Agreement

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Void agreements

Void agreements are those agreements which are not enforced by law courts. Section 2(g) of the Indian Contract Act defines a void agreement as, “an agreement not enforceable by law”. Thus the parties to the contract do not get any legal redress in the case of void agreements.

Void agreements arise due to the non-fulfillment of one or more conditions laid down by Section 10 of the Indian contract Act. This Section states as follows:

All agreements are contracts if they are made with free consent of parties competent to contract, for a lawful, consideration and with a lawful object, and are not hereby expressly declared to be void.

Nothing herein contained shall affect any law in force in India, and not hereby expressly repealed, by which any contract is required to be made in writing or in the presence of witness, or any law relating to the registration of documents.

From the above, it is quite clear that non-fulfillment of any of these conditions by one of the parties to a contract shall make an agreement void. These conditions being:-

1. Free consent of the parties;

2. Competency of the parties to contract;

3. Existence of a lawful consideration;

4. Existence of a lawful object;

5. Agreement being not included in the list of those specially declared to be void by the Indian Contract Act by its Section 26, 27, 28, 29, 30, and 56;

6. Completion of certain formalities required by any other law of the country like transfer of Property, Act, Company Act, etc.

Agreements under Mistake of Law

Indian Contract Act has nowhere defined mistake. However, it can be defined as an erroneous belief about something. Mistake is of two broad types. (1) Mistake as to fact, and (2) Mistake as to Law.

Sec. 21 of the Act deals with the effect of Mistake as to Law, but is silent over other issues relating to such types of mistake.

Agreements in Restraint of Trade: (Sec.27)

Every person has a lawful right to do or adopt any lawful profession, trade or business. If any agreement is made to put restriction over this right, that shall be an infringement of his fundamental right and shall also be against Public Policy. This is why the Indian Contract Act has specifically declared such agreements void.

Section 27 states:

Every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

Exception 1-One who sells the goodwill of a business may agree with the buyer to refrain from carrying in 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.

In India trade has been in its infany and it is desirable to develop trade. Therefore, through the stringent provisions of Sec. 27 every agreement interfering with the right to trade has been specifically declared void. Public policy required that every citizen be allowed freedom to work for himself and should get the benefit of labour to himself or to the State. He should not enter into any agreement by which he may not be able to utilise his skill or talent for his benefit or to the benefit of his country. If he does so by an agreement, he shall not be allowed to do so.

Indian law is very stringent on this point. It has invalidated many agreements on this around although they could have been allowed by the English Common Law. English Law has wavered from time to time with the changing conditions of the trade. Till some time Past it considered agreements in total restraint of trade to be valid, but in Nordenfalt V. Maxim Guns Co. it has been decided in 1894 that when restraint is reasonable it should be allowed and the agreement be not declared void on the plea of opposed to public Policy. Thus in India the courts have not been allowed to consider the degree of reasonableness or otherwise of the restraint.

The words, “To that extent”, included in the provisions of Sec.27 are very important. These words clarify the position of a situation where the agreement can be broken up into parts. If the agreement can be broken into parts and some of these parts are not affected by the provisions of this section, i.e. are not vitiated as being in restraint of trade, the agreement pertaining to these parts shall be held valid. However, where the agreement is not divisible, the whole of the agreement shall be declared void.

Let us now think over the cases where agreements in restraint of trade are not treated as void, by the courts in India also. The courts take the plea of reasonableness of limits as also their degree. The cases are covered under the head Exceptions.

Agreements in restraint of Legal Proceedings. (Sec. 28)

Every agreement by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce 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.

Exception 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 effect any provision of any law in force for the time being as to arbitration.

Section 28 of the Indian Contract Act, as is evident from the above, clearly states agreements retraining legal proceedings to be void. In India, as also in England, agreements perverting the course of justice are declared void, because their object is illegal. Neither the Law favours an agreement the object of which is to change the jurisdiction of a court of law nor it permits an agreement the object between the parties to invest a court which has no Jurisdiction, with authority to try the disputes arising out of a contract. But when two courts have jurisdiction to try a case, and the parties by an agreement limit the jurisdiction to one court only, then such an agreement shall not be declared as void.

Illustration: A conductor of a tramway company agreed to be bound by the manager of the company as regards a deposit and wage of the current month in case of any breach by him of the rules. The agreement was held valid.

Exception 2: This exception relates to those agreements whcih refrain the parties going to the Law Courts but in the event of disputes they shall refer them to the Arbitration. Such agreement shall not be declared void.

An agreement to do an act impossible in itself is void (S.56)

Impossibility of performance of an act does not give or creat any obligation upon the parties to a contract. Section 56 of the Act, declared such contract as void. This section states as follow:

An agreement to do an act impossible in itself is void.

A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, becomes void when the act becomes impossible or unlawful.

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

Illustrations

(a)  A agrees with B to discover treasure by magic. The agreement is void.

(b) A and b contract to marry each other. Before the time fixed for the marriage. A goes mad. The contract becomes void.

(c) A contracts to marry B, being already married to C, and being forbidden by law to which he is subject to practice polygamy. A must make compensation to B for the loss.

(d) A contracts to take in cargo for B at a foreign port. A’s Government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.

After going through the provisions of S.56 as stated above we find that impossibility is of two types

(1) Impossibility at the time of entering into a contract, and

(2) Subsequent impossibility, i.e. after the contract has taken place. We should like to know in detail about these tow types of impossibilities.

Impossibility from the very beginning, i.e. at the time of entering the contract. Agreements which are based upon acts the performance of which is impossible are declared void since the Law does not recognise impossible acts.

Impossible act from the very beginning may further be divided into two categories:

(a)  Where such acts are known to the parties:- Such impossibility is termed as Absolute Impossibility and in such cases the agreement is delcared void ab initio. If a tantric promises B to put life in the dead body of C for a consideration of Rs. 5,000 the promise forming this agreement shall be void ab initio, since it is a hard fact that life cannot be put in a dead body again.

(b)  Where such acts are not known to the parties:- There may be cases where the parties to the contract do not know about the reality of the fact at the time of entering into contract but after a certain time they come to know that the performance of such act is impossible. Soon the parties come to know about the impossibility of performance, the agreement becomes void. Such agreements are covered under the provisions of S.20 dealing with Mistake. In majority of cases such agreements relate to the non-existence of the subject matter of the contract at the time of entering into an agreement. Therefore, the agreement is vitiated by Mistake as to the existence of the subject matter of the contract. The following example will make the point all the more clear.

A agrees to sell out to B the timber lying in his Meerut godown for Rs. 2,000. He did not know that timber was already destroyed by fire. The contract is void under the provisions of S.20, i.e. Mistake as to the existence of subject matter of contract.

One important point in this connection is to be remembered. If one of the parties knows about the impossibility of performance, even then enters into an agreement with the other party, then the other party gets a right to be compensated for the loss or damage which he has suffered. Such an agreement amounts to Fraud as discussed by S. 17 of the Act. For example of A knew that the timber for which he is making an agreement to sell to B, has already been destroyed by fire, then his agreement with B shall not be covered by this section but by S.17 of the Act. Another good example is example (c) of S.56 wherein A contracts to marry B being already married to C, and being forbidden by the law to which he is subject to practice polygamy. A must make compensation to B for the loss caused to her by the non-performance of promise.

Impossibility which arises after the formation of the contract

A second category of Impossibility relates to such contracts which are valid in the beginning but becomes void subsequently because of some act or happening beyond the control of the parties. Such Impossibility is termed as Supervening Impossibility. The effect of such impossibility is also to make a contract void. Paragraph 2 of S.56 has stated about such impossibility. The common Law of England fixes responsibility upon a person to perform his promise without any qualification. Where the parties to the contract feel that there may be any hindrance in the performance of the contract thus in order to limit their obligation or to qualify the agreement they may impose such terms and condition which they deem fit. But a condition need not always be expressed in words. Conditions are implied also, which are to be fulfilled for a valid performance of the contract. If an event takes place which is beyond the control of the parties to the contract, and the performance of the contract is made impossible by such event, the parties shall be  excused from performing their obligations. A contract is declared void on the principle of Supervening Impossibility, if without promisor’s fault, any one of the following positions has arisen:

(a)  Performance is rendered impossible by Law. The Law of the land, after the agreement is entered into, may also take a change and thereby make the promisor helpless in meeting out his obligation. Under the circumstances he shall be excused for non-performance of his part of the promise.

(b)  A specific subject-matter assumed by the parties to exist or continue in existence is accidentally destryoed or fails to be produced, or an event or set of things assumed as the foundation of the contract does not happen or fails to exist, although performance of the contract according to its terms may be literally possible.

 (c)  The promise was to perform something in person and the promisor dies or is disabled by sickness or misadventure. Such cases are usually seen in the practical seen in the practical world. The contract is to be performed by the promisor only and not by his agent or any third party since the performance of the contract is based upon the personal skill or qualities. In such cases the contract shall be declared void, if the promisor becomes sick or is disabled or even dies.

(d)  Outbreak of War. Alien enemy does not have capacity to contract and an enemy country during the war, it shall not be enforceable on the ground of trading with an enemy. Where a contract is made with a country and after some time due to war the country is declared an enemy country, the contract shall be suspended till the war is over may be revived later on.

A contract shall not be discharged on the ground of Impossibility under the following cases-

a. The promisor feels difficulty in performing it, due to some unexpected events or delays.

b. Commercial impossibility. Where a party is unable to perform his part of the promise due to the unfavourable market, then he can not escape his liabilities for breach of the contract.

c. Failure on account of third person’s inability to do the work upon which the promisor relied upon, also shall not allow the promisor to plead supervening impossibility.

d. Strikes, lock-outs and civil disturbances also do not exonerate the promisor from his responsibility of performance. If the parties want a relief from such events, they should specify in the terms of contract specifically.

Effects of Supervening Impossibility

(1) The contract is declared void as per the provisions of Sec. 56 para 2.

(2) The promise is entitled for compensation, if the promisor knows about the impossibility of the performance at the time of entering into the contract, (Sec. 56, para 3).

(3) The parties receving any benefit shall have to restore back or to make compensation to the other party in case the contract is declared void. 

Edited by Soma Sarkar

Approved & Published – Sakshi Raje

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