Law of Contract

Void Agreements
Void Agreements
 “An agreement not enforceable by law is said to be
void”. Sec 2(g)
Note:
that it is not ‘void contract’, as an agreement
which is not enforceable by law does not become
‘contract’ at all.
 A void agreement has no legal effect. An agreement
which does not satisfy the essential elements of
contract is void. Void contract confers no rights on
any person and creates no obligation.
 Example: An agreement made by a minor,
agreement without consideration, certain agreements
against public policy etc.
Agreement which become void:
 An agreement, which was legal and
enforceable when it was entered in to, may
subsequently become void due to
impossibility of performance, change of law or
other reason. When it becomes void the
agreement ceases to have legal effect.
Void Agreements
 There are certain agreements, which are expressly declared to be void.
They are as follows:
 Agreement by a minor or a person of unsound mind .[Sec 11]
 Agreement of which the consideration or object is unlawful [Sec 23]
 Agreement made under a bilateral mistake of fact material to the
agreement [Sec 20]
 Agreement of which the consideration or object is unlawful in part and
the illegal part cannot be separated from the legal part [Sec 24]
 Agreement made. without consideration .[Sec 25]
 Agreement in restraint of marriage [Sec 26]
 Agreement in restraint of trade [Sec 27]
 Agreement in restraint of legal proceedings [Sec 28]
 Agreements the meaning of which is uncertain [Sec 29]
 Agreements by way of wager [Sec 30]
 Agreements contingent on impossible events [Sec36]
 Agreements to do impossible acts [Sec 56]
Agreements in Restraint of
Marriage
 Every individual enjoys the freedom to marry and so
according to section 26 of the contract act “every
agreement is restraint of the marriage of any person,
other than a minor, is void.” The restraint may be
general or partial but the agreement is void, and
therefore, an agreement agreeing not to marry at all,
or a certain person or, a class of persons, or for a
fixed period, is void. However, an agreement restraint
of the marriage of a minor is valid under the section.
 It is interesting to note that a promise to marry a
particular person does not imply any restraint of
marriage and is, therefore, a valid contract.
Continued….
 This section enact that agreement in restraint of the marriage of
any person, other than a minor is void. In the interest of the
society, contracts for marriage are scrutinized with a close and
vigilant suspicion of undue influence, fraud or imposition. The
law presumes constrictive fraud, on grounds of public policy, in
agreements respecting marriages since marriages of a suitable
nature are of the deepest importance of the wellbeing of the
society, as upon the equality and mutual affection much of their
happiness, sound morality, and mutual confidence, hence every
temptation of the exercise often undue influence, or a seductive
interest in procuring a marriage is suppressed, for there is
infinite danger that it may, under the guises of friendship,
confidence, flattery or falsehood, accomplish the ruin of person
especially females.
Continued……
 So the law—
 prevents improvident, ill-advised, and often fraudulent
matches;
 Avoid all such contracts as tend to the deceit and
injury, or encourage artifices and improper attempts
to control the exercise of free judgment;
 Illustrations
(a) A agrees with B for good consideration that she
will not marry C. It is a void agreement.
 (b) A agrees with B that she will marry him only; it is
a valid contract of marriage.
Agreement in restrain of legal
proceedings
 Every agreement, by which any party thereto is restricted
absolutely from enforcing his right 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. Section 28 declares the
following two kinds of agreements void:
 An agreement by which a party is restrained absolutely from
taking usual legal
Proceeding, in respect of any rights arising from a contract.
 An agreement which limits the time within which one may
enforce his contract
Rights, without to the time allowed by the limitation act.
Examples
 In a contract of fire insurance, it was provided
that if a claim is rejected and a suit is not filed
within three months after such rejection, all
benefits under the policy shell be forfeited.
The provision was held valid and binding and
the suit filed after three months was
dismissed. (Baroda spinning Ltd. vs.
Satyanarayan Marine and Fire Ins. Com. Ltd.)
CONTRACT IN RESTRAINT OF
TRADE
 The constitution guarantees that the freedom of trade and commerce to
every citizen and therefore section 27 declares “every agreement by
which any one is restrained from exercising a lawful profession, trade
or business of any kind, is to that extent void.” Thus no person is at
livery to deprive himself of the fruit of his labor, skill or talent, by any
contracts that he enters into.
 It is to be noted that whether restraint is responsible or not, if it is in the
nature of restraint of trade, the agreement is void always, subject to
certain exceptions provided for statutorily.
 Illustration
An agreement whereby one of the parties agrees to close his business
in consideration of the promise by the other party to pay a certain some
of money , is void, being an agreement is restraint of trade, and the
amount is not recoverable, if the other party fails to pay the promised
some of money. (Mad hub Chander vs. Raj Kumar).
 But agreements merely restraining freedom of action necessary for the
carrying on of business are not void, for the law does not intend to take
away the right of a trade to regulate his business according to his own
discretion and choice.
AGREEMENT BY WAY OF
WAGER
 Literally the word ‘wager’ means ‘a bet’ something stated to be
lost or won on the result of a doubtful issue, and, therefore,
wagering agreements are nothing but ordinary betting
agreements.
 Example, A and B mutually agree that if it rains today A will pay
B Rs.1000 and if it does not rain B will pay A Rs.1000 or C and
D entered into agreement that on tossing up a coin, if it fall head
upwards C will pay D Rs.500 and if falls tail upwards D will pay
C Rs.500, there is a wagering agreement.
 In Tracker vs. Hardy Cotton, L.J., described a ‘wager’ as follows:
“The essence of gaming and wagering is that one party is to win
and the other to lose upon a future event which at the time of the
contract is of an uncertain nature- that is to say, if the event
turns out the other way he will win.”
Agreement by way of wager, void
 Section 30 lays down that “agreements by way of wager are void; and no
suit shell 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,”
 Thus, where A and B enter into an agreement which provides that if
England’s cricket team wins the match, A will pay B Rs. 100, and if it loses
B will pay Rs. 100 to A, nothing can be recovered by the winning party
under the agreement, it being a wager. Similarly, whether C and D enter
into a wagering agreement and each deposits Rs.100 with Z instructing
him to pay or give the total sum to the winner, no suit can be brought by
the winner for recovering the bet amount from Z, the stake-holder. Further,
if Z had paid the sum to the winner, the looser cannot bring a suit, for
recovering his Rs.100, either against the winner or against, the stake-
holder, even if Z had paid after the loser’s definite instructions not to pay.
Of course the looser can recover back his deposit if he makes the demand
before the stake-holder had paid it over to the winner (Ratnakalli vs.
Vochalapu). But even such a deposit cannot be recovered by a loser in the
States of Maharashtra and Gujarat where such an agreement is void and
illegal.
 Exceptions
 Horse Race - This section does not render void a subscription or
contribution, or an agreement to subscribe or contribute, toward any plate,
prize or sum of money, of the value or amount of five hundred rupees or
upwards to the winner or winners of any horse race.
Crossword competitions and lottery
 The supreme court of India in B.R Enterprises V. State of U.P.
held that even the state sponsored lotteries have the same
element of chance with no skill involved in it and it comes under
wagering contracts as the very nature of agreement has not
changed and thus be void. If chance does not play a role and
victory is completely dependent on skill, the competition is not a
lottery .Otherwise it is.
 The Madhya Pradesh High Court in Subhash Kumar Manwani v.
State of MP has characterized lotteries as wager and the court
held that agreement for payment of prize money on a lottery
ticket was held to be coming within the category of wagering
agreement as contemplated by section 30.
 The principle and purpose behind Sec. 30 to treat an agreement
by way of wager as void is that, the law discourages people to
enter into games of chance and make earning of trying luck
instead of spending their time, energy and labour for more
fruitful and useful work for themselves, their family and society.