VOID AGREEMENTS

An agreement enforceable by law

is a contract but when it is not
enforceable it is said to be void.
 VOID AGREEMENTS: LEARNING OBJECTIVES

• Void Agreement Versus Void Contract

• Void Agreement Versus Illegal Agreement
• Agreements Expressly Declared Void
• Restitution of Benefits Received Under Void
Agreements
 Void Agreement Defined
An agreement enforceable by law is a
contract but when it is not enforceable it is
said to be void.
Thus, the real test of void-ness of an
agreement lies in its enforceability at law. A
void agreement never matures into a contract.
It is void from the very beginning and is ,
therefore, devoid of any legal effect.
 VOID AGREEMENT VERSUS VOID CONTRACT
Differentiating VOID AGREEMENT/ VOID CONTRACT
Features VOID-AB-INITIO
Void Duration Void from very beginning Valid in the beginning but
to end became void when one party
fails to perform due to some
uncontrollable reasons
Enforceability Not Enforceable Not Enforceable
Third Party Absent Can be present
Involvement
Rights and NA Available
Compensation
Damages and NA Allowable
Compensation
Examples Agreement with minor, Either party of the contract
unsound mind, persons died/ became unsound
disqualified by law, mind/or incapable to
agreements for any illegal perform the contractual
object/consideration obligations.
 VOID AGREEMENT VERSUS ILLEGAL AGREEMENT
“All illegal agreements are void but all void
agreements are not illegal”
An agreement, which is simply void, and a strictly
illegal agreement have several commonalities in
terms of many legal effects.
For instance, both are unenforceable and, in
general, incapable of specific performance.
A void agreement is different from an illegal one in
as much as it is simply unenforceable, but may not
necessarily be forbidden by law.
An illegal agreement, on the other hand, is one in
which the consideration or object is also unlawful.
Unlawful agreements vs illegal agreements
BASIS FOR UNLAWFUL
ILLEGAL AGREEMENT
COMPARISON AGREEMENT
Meaning An agreement, An agreement whose
which lacks legal creation is forbidden by
enforceability, is the court of law is an
unlawful illegal agreement.
agreement.
Consequence An agreement An illegal agreement is
becomes void when void ab initio i.e. void
it loses its from the very beginning.
enforceability by
law.
Prohibition by No Yes
IPC
Scope Wide Narrow
Penalty Parties to unlawful Parties to illegal
agreement are not agreement are penalized.
liable for any
penalty under law.
Connected May not necessarily All connected agreements
agreements be void, they may are void.
be valid also.
Examples Technical errors in Agreement to do some
the agreements, criminal acts etc.
agreements with
incompetent parties
etc.
Void agreements, void contract, valid contract and voidable contract

VOID AGREEMENTS- VOID CONTRACTS VALID VOIDABLE

VOID-AB-INITIO CONTRACTS CONTRACTS
UNLAWFUL ILLEGAL
due to technical due to any valid at the which is in which the
errors act beginning and later enforceable by aggrieved party
forbidden on became law and has all has an option
under IPC impossible to the essential to make the
perform due to elements of a contract valid
some valid contract or void
uncontrollable
reasons
Wrong name, Murder, Either party All the Consent is not
address, date, kidnapping died/became essentials of free due to
missing sign, , unsound mind, valid contract coercion,
date, name, smuggling, disqualified at the undue
agreement with immoral time of influence,
incompetent etc. performance. misrepresentati
parties, mistake on and fraud
of law/facts etc.
 AGREEMENTS EXPRESSLY DECLARED VOID
The following types of agreements are expressly declared void
under the Indian Contract Act.
1. Agreements by or with person(s) incapable of contract (Sections
10 & 11).
2. Agreements entered into under a mutual mistake of fact
(Section20).
3. Agreements of which considerations and objects are unlawful in
full or in part (Sections 23-24).
4. Agreements without consideration (Section 25).
5. Agreements in restraint of marriage (Section 26).
6. Agreements in restraint of trade (Section 27).
7. Agreements in restraint of legal proceedings (Section 28).
8. Agreements – the meaning of which is uncertain (Section 29).
9. Agreements by way of wager (Section 30).
10. Agreements to do an impossible act (Section 56). Contd.
Agreements in Restraint of Marriage
A marriage contract flows from free consent; therefore, restrictions on
marriage are regarded as contra bonos mores i.e., opposed to public policy.
Every agreement in restraint of the marriage of any person, other than a
minor, is void.’ An agreement in restraint of marriage is unenforceable on the
ground of public policy, whether it contains an express undertaking that the
subject will not marry, or whether on financial or other grounds it tends to
discourage a subject to marry . [Section 26]
The restraint may be general or partial. So, if a person, being a major,
agrees for good consideration not to marry at all, or not to marry for a fixed
period, or not to marry a particular person or a class of persons, the promise is
not binding. However, a penalty imposed on remarriage does not amount to
restraint of marriage. Thus, an agreement between two co-widows that if one
of them remarried, she should forfeit her right to her share in the deceased
husband’s property, has been upheld, the court pointing out that no restraint
was imposed upon either of the two widows for remarriage.
Similarly, an agreement that upon the husband marrying a second woman,
the first would elect to divorce him, the divorce shall be valid and she will not
be deprived of her right to maintenance from him.
 Agreements in Restraint of Trade
Certain agreements which seek to impose a restriction on a
person’s right to carry on a trade or profession fall within the
restraint of trade doctrine.
In view of their tendency to create monopolies, all restraints of
trade are contrary to public policy and prima facie void, unless they
can be regarded as reasonable as between the contracting parties,
and as regards the public policy. Freedom of trade and commerce is
a fundamental right protected by the Constitution of India under
Article 19(g).
Section 27 declares in express terms that ‘Every agreement by
which any one is restrained from exercising a lawful profession,
trade or business of any kind, is to that extent void
X, a trader operating in a particular locality, agrees to pay Y, his
competitor in the business, a fixed amount as compensation so that
Y shuts down his business in that locality. The agreement is void. If X
subsequently refuses to pay Y the agreed compensation, the law
will not safeguard his Y’s interest. Contd.
Judicially Interpretative Exceptions: Exceptions arising
from judicial interpretations of Section 27.
1. Trade combinations. Trade combinations are voluntary
agreements among traders or manufacturers in the same
line of business to carry on their business in an organized
way. Such as mergers, acquisitions, takeovers, joint
ventures etc.
A AND B- INDIVIDUAL ASSETS AND LIABILITIES- 50 CRORE-
ANIL
AFTER MERGER
AB LTD- JOINT ASSETS AND LIABILITIES
Judicially Interpretative Exceptions: Exceptions arising
from judicial interpretations of Section 27.

2. Exclusive dealings agreements. An agreement by a

manufacturer to sell during a certain period his entire
production to a wholesale merchant or distributor and
the later in turn agrees to not to deal with the
products of any other manufacturer is valid and not in
restraint of trade. Similarly, an agreement among the
sellers of a particular commodity not to sell the
commodity except for less than a fixed price has been
held as enforceable. To enforce any exclusive dealing
agreement, it is, however, necessary that their terms
be reasonable i.e., they do not unreasonably check
competition. E.g. Flipkart excusively selling Motorola
mobiles.
Judicially Interpretative Exceptions: Exceptions arising
from judicial interpretations of Section 27.
3. Restraints upon employees. An agreement of
service by which an employee binds himself during the
term of his agreement, not to compete with employer
is not a restraint of trade and therefore valid.
A contract of employment, as a matter of fact, by its
very nature ties the employee to his master only so
long as the employment lasts. Public policy requires
that neither the worker himself nor his master should
be deprived of the benefits of his labour, skill or talent
by imposing restrictions upon his future activities. An
agreement imposing a restriction on the employee
after leaving an employer will only be reasonable
between the parties if there is some proprietary
interest of the employer meriting protection, i.e.,
trade secrets or business connection.
 Agreements In Restraint Of Legal Proceedings
According to Section 28, ‘every such
agreement
• by which any party thereto is restricted
absolutely from enforcing its 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
enforce his rights; or
• Referring a dispute to arbitration
 Agreements The Meaning Of Which Is Uncertain

Agreements, the meaning of which is not certain,

or not capable of being made certain, are void.
[Section 29]
1. A agrees to sell B "a hundred tons of oil". There
is nothing whatever to show what kind of oil was
intended. The agreement is void for uncertainty.
2. A agrees to sell to B his white horse for Rs 500 or
Rs 1,000. the value of horse is not certain. The
agreement is void.
3. A agrees to sell to B a bike. There is no further
detail communicated by A to B. The agreement is
void on the grounds of uncertainty.
 Agreements by Way of Wager

The term ‘wager’ literally means ‘a bet’. It implies an

arrangement to risk money on the result of an (uncertain) event.
Therefore, wagering agreements are ordinarily betting
agreements.
A and B who are neighbours bet as to whether an earthquake
would rock their city on a particular day or not. A promises to pay
to B Rs 5,000 if the city experiences a tremor, and B promises an
equal amount to A, if it does not. This is an arrangement by way of
wager.
The Indian Contract Act has, however, nowhere defined a wager
or an agreement by way of wager. ‘A wagering contract may be
defined as a promise by A to pay money to B on the happening of
a given uncertain event, in consideration of B paying money to A
on the event not happening.’
[COCKBURN C.J.]
 Agreements by Way of Wager

An agreement by way of wager, therefore,

implies nothing but a promise to give money or
money’s worth upon the determination of an
uncertain event. The following are the common
examples of agreements by way of wager:
• Lottery
• Gambling
• Competitions where prizes depend upon chance
 Lottery is legal in the following 13
states of India
• Assam
• Arunachal pradesh
• Goa
• Keral
• Madhya pradesh
• Maharashtra
• Manipur
• Meghalaya
• Mizoram
• Nagaland
• Punjab
• Sikkim
• West bengal
 Essentials of a Wagering Agreement

• Uncertain event A wagering transaction in fact is a game of chance. The

essence of a wager is the uncertainty of the event. To constitute a wager,
the performance of the bargain must depend upon the ascertainment of
an uncertain event.
• Mutuality There must be mutual chances of gain and loss (i.e., each
party should stand to win or lose), according to the result of the uncertain
event. If either of the parties may win but cannot lose or may lose but
cannot win, it is not a wagering agreement.
• Neither party to have control over the event In order to effect an
agreement by way of wager, neither party should have control over the
happening of the event one way or the other.
• No proprietary interest in the event There being no other real
consideration for the making of such contract, neither party should have
any other interest in that contract other than the sum or stake he will win
or lose.
 Consequences of Wagering Agreements
Agreements by way of wager are unenforceable, and are null and
void as they are considered being opposed to public policy.
• ‘Agreements by way of wager are void; and no suit shall 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.’
• In India wagering agreements are simply void, but not illegal.
• A borrows Rs 1,000 from C to pay to B, to whom he has lost a bet.
The agreement between A and C is invalid if the transaction took
place in uttar pradesh. Accordingly C cannot recover the amount
from A because this is the money paid in connection with “a
wagering agreement” which is illegal in the state. But as regards,
rest of India such a transaction (i.e., betting) being only void, the
agreement between A and C would be valid. Section 30
 Exceptions to Wagering Agreements

1. Horse-race A subscription, contribution, or agreement to

subscribe or contribute, made or entered into for, or towards
any prize or sum of money of the value or amount of Rs 500 or
upwards, to be rewarded to the winner or winners of any horse
race shall not be void. (See proviso to Section
30). Simply put, contributions, or betting money in horse races, in
which there are cash rewards for the winner or winners is not
deemed illegal in the eyes of the law, provided the sum is Rs 500
or more.
2. Prize competitions Prize competitions, which involve skill and
intelligence (i.e., where prizes do not depend upon chance) For
example, picture puzzles, literary competitions, athletic event
etc., are not wagers provided the amount of prize does not
exceed Rs 1,000.
 Exceptions to Wagering Agreements

3. Contracts of Insurance Despite bearing a resemblance to wagering

contracts, contracts of insurance cannot be recognized as wagers. The
law distinguishes between the two for the simple reason that in a
contract of insurance the insurer’s object is to preserve himself from
financial loss–called insurable interest,– and not to arrange that he
should gain or someone else should lose if an uncertain event turns
out in a particular way. Contracts of insurance have in fact become a
necessity with the development of trade, and are recognized as
contracts, which the law would enforce. An insurance contract could
sometimes turn out to be a wager if the party insuring has no
insurable interest.
Agreements To Do Impossible Acts

An agreement to do an act impossible in itself is void [S 56].

A agrees with B to double treasure by magic. The agreement
is void.
The law disregards all the agreements to do impossible acts,
mainly because of the following two reasons:
Firstly, the persons who mean to agree to do such obviously
impossible acts are deemed to be either non-serious as to
performing such acts or unable to understand what they are
doing.
Secondly, A promise to do an act impossible in itself cannot
be of any value to the other party and therefore such
agreements lack consideration.
RESTITUTION OF BENEFITS RECEIVED UNDER VOID
AGREEMENTS

The term ‘restitution’ legally implies giving back or

restoration of the money or benefit received from the
plaintiff under the agreement.
When an agreement is discovered to be void, or when a
contract becomes void, any person who has received any
advantage under such an agreement or contract is bound to
restore it, or to make compensation for it, to the person from
whom he received it. [Section 65]
Thus, when a contract is no more enforceable, the party
who has received any benefit under such a contract from the
other party must return it or make compensation for the
same to the other party.
RESTITUTION OF BENEFITS RECEIVED UNDER VOID
AGREEMENTS- examples

Example 1. A pays B Rs 1,000 in consideration of B

promising to marry C, A’s daughter. C dies by the
time of execution of the promise. The agreement
is void, but B must return A the Rs 1,000.
Example 2. A contracts with B to deliver him 250
bags of rice before the first of May. A delivers 130
bags only by the specified date, and none after. B
retains the 130 bags after the first of May. He is
bound to pay A for the bags that he has kept.