CONTRACTS I

Void Agreements

Give an account of void agreements provided under the Indian Contract Act,
1872. [10]

Introduction: There are some agreements that have been specifically declared as void by
the Indian Contract Act. Even if such agreements satisfy the conditions of a valid
contract, they are not enforceable. The agreements which have been declared void by the
Act are as follows:
1. Agreement of which the consideration or the object is not lawful. (Sections 23 and
24)
2. Agreement without consideration. (Section 25)
3. Agreement in restraint of marriage. (Section 26)
4. Agreement in restraint of trade. (Section 27)
5. Agreement in restraint of legal proceedings. (Section 28)
6. Agreement which is ambiguous and uncertain. (Section 29)
7. Agreement by way of wager. (Section 30)
8. Agreement to do an impossible act (Section 56).

Agreement of which the consideration or the object is not lawful

There should be lawful consideration and lawful object in respect of that agreement.
‘Lawful’ means that the object and consideration promised to be delivered should not be
violative of any law and should abide by the rules laid down in the Indian Contract Act,
1872. For a contract to be valid there has to be some form of consideration, however it is
immaterial whether the consideration is considered adequate.

Agreement without Consideration

Consideration is one of the essentials of a valid contract, as mentioned in Sec 10.

Therefore, Section 25 of the Act declared any agreement without consideration as void.
However, this section does mention three exceptions when there is no need for any
consideration for the validity of the contract.
• When the agreement is made on account of natural love and affection between
parties standing in a near relation to each other.
• When it is a promise to compensate, wholly or in part, a person who has already
voluntarily done something for the promisor or something which the promisor
was legally compelled to do
• When it is a promise to pay wholly or in part a debt of which the creditor might
have enforced but for the law for the limitation of suits.

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Agreement in Restraint of Marriage

According to section 26, every agreement in restraint of the marriage of any person, other
than a minor, is void. An agreement which restricts person's freedom to marry, or to
marry any person of his choice is against public policy and is void. Whether the
agreement puts a total restraint on the right to marry, or only a partial restraint imposing a
restriction on marrying for a certain period, or marrying a certain person, the agreement is
void. An agreement containing a condition in a wakf that a widow would lose her right
for maintenance on re-marriage is not an agreement in restraint of marriage. Similarly,
agreement between two co-widows that anyone of them would lose her right to the
deceased husband's estate on re-marriage, is not a restraint on the right of re-marriage.

Agreement in Restraint of Trade

According to section 27 “every agreement by which anyone is restrained from exercising

a lawful profession, trade or business of any kind, is to that extent void.” An agreement,
which unnecessarily curtails the freedom of a person to trade, is against public policy.
Restraining a person from carrying on a trade generally aims at avoiding competition and
bas monopolistic tendency and this is both against an individual's interest as well as the
interest of the society and on that ground such restraints are discouraged by law.

Section 27, which declares an agreement in restraint of trade as void, does not allow any
distinction between a total restraint or a partial restraint. Thus, whether the agreement
imposes a total restraint, e.g., it says that A shall not carry on a trade anywhere in the
country during his lifetime, or it imposes only a partial restraint requiring A not to trade
within a certain area or for a certain duration, the agreement is void.

Agreement in restraint of legal proceedings

Sec. 28 states that an agreement absolutely restraining a party from enforcing rights
through a court of law, or an agreement which places a limit as on the time within which
a right can be enforced, is void. The section reads, “Every agreement,
1. 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 or
2. Which extinguishes the rights of any party thereto, or discharges any party
thereto, from any liability, under or respect of any contract on the expiry of a
specified period as to restrict any party from enforcing his rights, is void to that
extent.”

This section makes two kinds of agreements void

• Agreement, by one party is absolutely debarred from enforcing his rights
through usual legal proceedings.

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• Agreement, which places a time limit for enforcing a right through legal
proceedings.

Agreement, which is ambiguous and uncertain

According to section 29, agreements the meaning of which is not certain or capable of
being made certain, are void. It is necessary that there should be no ambiguity about what
the parties intend. If the meaning of an agreement is neither certain, nor capable of being
made certain, the agreement is void. For example, A agrees to sell to B a ‘hundred tons of
oil’. There is nothing whatever to show what kind of oil was intended. The agreement is
void for uncertainty.

Agreement by way of wager

Section 30 declares wagering agreements as void. The section states that 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 by the result of any game or other
uncertain event on which any wager is made.

Agreement to do an impossible act

If the performance of the contract itself is impossible, then obviously the contract is
considered void.

Sec 56 mentions 2 kinds of impossibility.

• Impossibility existing at the time of the making of the contract
• A contract, which is possible and lawful when made, but becomes impossible and
unlawful thereafter due to some supervening event.

Conclusion: There are some agreements that have been specifically declared as void by
the Indian Contract Act. Even if such agreements satisfy the conditions of a valid
contract, they are not enforceable. The agreements, which have been declared void by the
Act, have been discussed above.

“An agreement in restrain of lawful trade or occupation is void.” Explain the

exceptions, if any. [10]

Introduction: There are some agreements that have been specifically declared as void by
the Indian Contract Act. Even if such agreements satisfy the conditions of a valid
contract, they are not enforceable. The agreements which have been declared void by the
Act are as follows:

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1. Agreement of which the consideration or the object is not lawful. (Sections 23 and
24)
2. Agreement without consideration. (Section 25)
3. Agreement in restraint of marriage. (Section 26)
4. Agreement in restraint of trade. (Section 27)
5. Agreement in restraint of legal proceedings. (Section 28)
6. Agreement which is ambiguous and uncertain. (Section 29)
7. Agreement by way of wager. (Section 30)
8. Agreement to do an impossible act (Section 56).

Agreement in Restraint of Trade

According to section 27 “every agreement by which anyone is restrained from exercising

a lawful profession, trade or business of any kind, is to that extent void.” An agreement,
which unnecessarily curtails the freedom of a person to trade, is against public policy.
Restraining a person from carrying on a trade generally aims at avoiding competition and
bas monopolistic tendency and this is both against an individual's interest as well as the
interest of the society and on that ground such restraints are discouraged by law.

Section 27, which declares an agreement in restraint of trade as void, does not allow any
distinction between a total restraint or a partial restraint. Thus, whether the agreement
imposes a total restraint, e.g., it says that A shall not carry on a trade anywhere in the
country during his lifetime, or it imposes only a partial restraint requiring A not to trade
within a certain area or for a certain duration, the agreement is void.

Exceptions to an Agreement in Restraint of Trade

Sale of Goodwill

When there is sale of business by a person along with its goodwill the seller of the
business may make an agreement with the buyer not to carry on the business in
competition with the buyer. Such an agreement, even if imposing a reasonable restriction
on the seller's right to carry on the business, is valid, both in India and England.
Exceptions 1 to Sec. 27 of the Indian Contract Act, which permits such an agreement on
the sale of goodwill, reads, “One who sells the 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, carried on a like
business therein, provided that such limits appear to the Court reasonable, regard being
had to the nature of the business.

Thus, an agreement by a person, who sells the goodwill of his business not to carry on a
similar business within specified local limits, so long as the buyer carries on a similar
business, is valid, provided that the restrictions are reasonable. When a person purchases
the goodwill of the business, he pays for the right to carry on a certain type of business, in
exchange for an express or an implied promise by the seller not to carry on that type of

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business. It will be contrary to the spirit of the contract of sale of goodwill, if the seller of
the goodwill, who has received money for the same, starts that business in competition
with the buyer again. If theobject of the agreement is to protect the right of the buyer of
the goodwill, the restraint is valid. If, on the other hand, the restraint merely aims at
avoiding competition, the covenant would be invalid.

Exceptions under the Indian Partnership Act

Notwithstanding the rule contained in section 27, Indian Contract Act that an agreement
in restraint of trade is void, such an agreement can be validly made by the partners in four
situations
1. Section 11(2), Indian Partnership Act permits the partners of a partnership firm to
make a contract which provides that a partner shall not carry on any business
other than that of the firm while he is a partner. The purpose of such an agreement
is that the partners will not carry on their own business ignoring the partnership
business. Such an agreement is valid and is not hit by the rule contained in section
27, Indian Contract Act.
2. Another exception is contained in section 36(2), India Partnership Act. According
to this provision, such an agreement may be made between the outgoing partner
and the remaining Partners who continue the business of the firm. Generally, an
outgoing partner is paid his share of the goodwill of the firm, and it is reasonable
that he agrees that he not carry on a business similar to that of the firm. Such an
agreement is valid if the restrictions as regards time for which, and the area within
which a similar business is not to be carried on, are reasonable.
3. Section 54, Indian Partnership Act, contains another exception to the rule and
permits such an agreement to be made upon or in anticipation of the dissolution of
the firm. The provision is as follows: “Partners may, upon or in anticipation of the
dissolution of the firm, make an agreement that some or all of them will not carry
on a business similar to that of the firm within a specified period or within
specified local limits; and notwithstanding anything contained in section 27 of the
Indian Contract Act, 1872, such agreement shall be valid if the restrictions
imposed are reasonable.”
4. Section 55(3), Indian partnership Act, contains still another exception to the rule.
The section reads as under: “Any partner may, upon the sale of the goodwill of a
firm, make an agreement with the buyer that such partner will not carry on any
business similar to that of the firm within a specified period or within specified
local limits, and notwithstanding anything contained in section 27 of the Indian
Contract Act, 1872, such agreement shall be valid if the restrictions imposed are
reasonable.”

Restraint by a Contract of Service

An agreement of service under which an employee agrees that he will serve a particular
employer for a certain duration, and that he will not serve anybody else during that
period, is a valid agreement. During the period of employment, the employer has an

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exclusive right to avail the services of his employee and, therefore, a restraint on the
employee to serve somebody else at the same time is reasonable. Such an agreement is
not hit by the doctrine of restraint of trade.

Trade Combinations

Sometimes, the traders or manufacturers combine together to eliminate competition as

between themselves and make agreements fixing minimum price, regulating the supply of
goods and putting profits in a common pool and the dividing the same amongst
themselves. Such agreements are neither void on then ground of being opposed to public
policy, nor are they deemed to be in restraint of trade.

Solus Agreement

Sometimes the seller or the manufacturer of a certain product may agree that he will
supply the whole of his product to a particular single buyer only, or, similarly, a buyer
may agree that he will purchase all his requirements of a certain commodity from a
particular seller or manufacturer only and none else. Such agreements are called 'solus
agreements'. In such a case, one party agrees to deal only with the other party and none
else. They are also known as 'exclusive dealing agreement'. So long as the object of the
agreement is the benefit of the parties to the contract rather than monopolizing the trade,
there is nothing unreasonable in it and the agreement is not considered to be in restraint
of trade.

In the following exceptional cases solus agreements are not valid:

• When the buyer does not agree to purchase the whole quantity, he cannot restrain
the seller from selling his surplus to others.
• When the object of the agreement is to corner goods or to monopolise trade, or the
restraint is for an unduly long time.

Conclusion: According to section 27 “every agreement by which anyone is restrained

from exercising a lawful profession, trade or business of any kind, is to that extent void.”
However, the section does mention certain exceptions where, even with restraint of trade,
the agreement is valid.

Write a note on wagering agreements [6]

Introduction: There are some agreements that have been specifically declared as void by
the Indian Contract Act. Even if such agreements satisfy the conditions of a valid
contract, they are not enforceable. The agreements which have been declared void by the
Act are as follows:

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1. Agreement of which the consideration or the object is not lawful. (Sections 23 and
24)
2. Agreement without consideration. (Section 25)
3. Agreement in restraint of marriage. (Section 26)
4. Agreement in restraint of trade. (Section 27)
5. Agreement in restraint of legal proceedings. (Section 28)
6. Agreement which is ambiguous and uncertain. (Section 29)
7. Agreement by way of wager. (Section 30)
8. Agreement to do an impossible act (Section 56).

Agreement by way of Wager

Section 30 declares wagering agreements as void. The section states that 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 by the result of any game or other
uncertain event on which any wager is made.

The term ‘wagering agreement’ has been defined in Carlill v. Carbolic Smoke Ball Co. It
states that a contract is one by which two persons, professing to hold opposite views
touching the issue of a future uncertain event, mutually agree that, dependent upon the
determination of that event, one shall win from the other, and that other shall pay or hand
over to him, a sum of money or other stake; neither of the contracting parties having any
other interest in that contract than the sum or stake he will so win or lose, there being no
other real consideration for the making of such contract by either of the parties. It is
essential to a wagering contract that each party may under it either win or lose, whether
he will win or lose being dependent on the issue of the event, and, therefore, remaining
uncertain until that issue is known. If either of the parties may win but cannot lose, or
may lose but cannot win, it is not a wagering contract.

Essentials of a Wagering Agreement

The essentials of a wagering agreement are:

• The parties have opposite views regarding an uncertain event.
• There are chances of gain or loss to the parties on the determination of the event
one-way or the other.
• The parties have no other interest except winning or losing of bet.

Conclusion: Wagering agreements have been declared void by the Act. Though the Act
itself has not defined what a wagering agreement is, it’s meaning has been derived from
the Carlill v. Carbolic Smoke Ball Co. case. A wagering agreement has three essential
agreements as discussed above.

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Problem [6]

‘A’ promised to pay ‘B’ a sum of Rs 5000 in consideration of procuring a second wife for
him. B procured a wife and the marriage took place but a refused to pay the money. Can
B recover the money?

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