Void Agreements

 Void Agreements
 Some agreements are specifically declares void by Indian Contract Act. Following is the
list of the same.
1. Agreement of which consideration or object is not lawful. (sec 23-24)
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. Agreement which is ambiguous and uncertain (sec. 29)
7. Agreement by way of wager (sec. 30)
8. Agreement to do an impossible act (sec. 56)

 Agreement in restraint of marriage (sec. 26)

 Sec. 26: Agreement in restraint of marriage, void
Every agreement in restraint of the marriage of any person, other than a minor, is void.
 Every person must have freedom to marry, any agreement which restricts a person’s
freedom to marry or to marry any person of his choice is against public policy and is void.
 In Lowe v. Peers (1768) the promise made by a person in favour of a lady that he would
not marry any other person and if he does he will pay £ 2,000 to her is held to be void.

 Agreement in restraint of trade (sec. 27)

 Sec 27: Agreement in restraint of trade, void
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 and is void.

 Madhub Chander v. Rajcoomar Dass (1874)

 A and B carried on the same business in the same locality in Calcutta.
 B agreed to pay some amount to A if A closed his business in that locality.
 A closed down his business and brought a suit to recover the promised amount.
 It was held by the court that this kind of agreement is void because the agreement
was in restraint of trade.
• Exceptions to an agreement in restraint of trade
1) Sale of goodwill.
2) Exceptions under Indian Partnership Act 1932.
3) Restraint by a contract of service.
4) Trade combinations.
5) Solus agreement.
• 1. Sale of Goodwill
 Goodwill is considered equivalent to goods, and is saleable commodity under Sales of
Goods Act.
 If goodwill is sold to some person, that person may restrict the seller not to carry on the
same business or to compete.
Exception 1 : Saving of agreement not to carry on business of which good will is sold
- 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, carries on a like business therein, provided that
such limits appear to the court reasonable, regard being had to the nature of the business.
• Vancouver Malt and Sake Brewing Co. v. Vancouver Breweries Ltd. (1934)
 The appellant had a brewer’s licence in respect of their premises in Vancouver, under
which they could manufacture and sell beer.
 But they never manufactured of sold beer, the only liquor they manufacture was sake
(Japanese liquor made from rice)
 Appellant made an agreement with respondent for £15,000 all the goodwill of their
brewer’s licence and agreed not to engage in the trade of manufacturing and selling beer
for a period of 15 years.
 Whether this agreement is valid or void?
 Decision
 Court held that the agreement to sell the business of beer, which they had never carried
on, there could be no goodwill of the business.
 So the current agreement is only an agreement restraint to trade and is void.

 2. Exceptions under Indian Partnership Act 1932

 Indian Partnership Act permits making an agreement to restraint trade under four
provisions, i.e. sections11(2), 36(2), 54 and 55(3).

 Sec. 11(2) of Indian Partnership Act

 Section11 DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY
CONTRACT BETWEEN THE PARTNERS.

(2) AGREEMENTS IN RESTRAINT OF TRADE.

Notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such
contracts may provide that a partner shall not carry on any business other than that of the
firm while he is a partner.
 Sec 36(2) of Indian Partnership Act
 Section36 RIGHTS OF OUTGOING PARTNER TO CARRY ON COMPETING
BUSINESS.

(2) AGREEMENT IN RESTRAINT OF TRADE.

A partner may make an agreement with his partners that on ceasing to be a partner he 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.
• Sec 54 of Indian Partnership Act
 Section54 AGREEMENTS IN RESTRAINT OF TRADE.
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.
• Sec 55(3) of Indian Partnership Act
 Section55 SALE OF GOODWILL AFTER DISSOLUTION:
(3) AGREEMENTS IN RESTRAINT OF TRADE.
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 are
reasonable.
• 3. Restraint by a contract of service
 An agreement in which an employee agrees to serve for a particular employer is good and
valid.
 During the period of service employer has exclusive right to utilise the services of
employee.
 Charlesworth v. Mac Donald (1898)
 Defendant entered into an agreement with plaintiff (Surgeon) to work as an assistant with
him.
 And not to practice the profession himself for a period of 3 years in Zanzibar.
 After one year he left the employment and started his own private practice.
 Court held that agreement between both is valid and enforceable.

 Garden Leave Clause

 It is the clause operates after the cession of employment, either upon the termination or
resignation from the service.
 Under this clause the employee is prohibited from carrying on any business which
competes directly or indirectly with the business of employer.
 4. Trade Combinations
 Sometimes, the traders or manufacturers combine together to eliminate competition.
 Fixing minimum price, pooling of profit, regulating supply of goods is some of the routine
practices under trade combination.
 Solus Agreement
 Sometimes the seller of manufacturers of certain product may agree that he will supply his
product to a particular single buyer only.
 Similarly buyer may also enter into an agreement that he will purchase all the commodities
from one seller.
  These agreements are also known as by “Exclusive dealing Agreements”
 Agreement in restraint of legal proceedings
 Sec 28: Agreements in restrain of legal proceedings, void
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 the extent.
 Exceptions
 Exception 1 : Saving of contract to refer to arbitration dispute that may arise: 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 subject shall be referred
to arbitration, and that only amount awarded in such arbitration shall be recoverable in
respect of the dispute so referred.
 Exception 2: Saving of contract to refer question that have already arisen - 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 in force for the time being as to reference to arbitration.
 Two kind of restrictions u/s 28
1. Agreement by which one party is absolutely debarred from enforcing his rights
through usual legal proceedings.
2. Agreement which places a time limit for enforcing a right through legal proceedings.
• Hakam singh v. Gammon India Ltd. (1971)
 Two courts i.e. Bombay and Varanasi were having jurisdiction to entertain a suit.
 Parties to contract put a clause in the agreement in the agreements that court of law in
Bombay alone shall have jurisdiction to adjudicate thereon.
 But the case was filed in Varanasi. And it was contended that such clause is void under
sec 28.
 Whether clause is void or not?
 Decision
 Choosing jurisdiction amongst two courts is not prohibited under sec 28.
 So present suit was dismissed and parties were asked to file the suit in civil court of
Bombay.
• Ambiguous and Uncertain Agreements
 Sec 29: Agreements void for uncertainty: Agreements, the meaning of which is not
certain, or capable of being made certain, are void.
 Illustration: 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.
• Agreement by way of Wager
 Sec 30: Agreements by way of wager, void
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.
• Exception in favour of certain prizes for horse-racing
 This section shall not be deemed to render unlawful a subscription or contribution, or
agreement to subscribe or contribute, made or entered into for or toward any plate, prize or
sum of money, of the value or amount of five hundred rupees or upwards, to be rewarded
to the winner or winners of any horse-race.
Section 294A of the Indian Penal Code not affected : Nothing in this section shall be deemed to
legalize any transaction connected with horse-racing, to which the provisions of section
294A of the Indian Penal Code (45 of 1860) apply.

• 294A. Keeping lottery office

 Whoever keeps any office or place for the purpose of drawing any lottery not being a State
lottery or a lottery authorised by the State Government, shall be punished with
imprisonment of either description for a term which may extend to six months, or with
fine, or with both.
 And whoever publishes any proposal to pay any sum, or to deliver any goods, or to do or
forbear doing anything for the benefit of any person, on any event or contingency relative
or applicable to the drawing of any ticket, lot, number or figure in any such lottery, shall be
punished with fine which may extend to one thousand rupees.
• Wagering Agreements
 ICA does not define wagering agreements.
 Nature of these agreements were explained by Hawkins J. In Carlill v. Carbolic Smoke
Ball Co. as “ A wagering contract is one by which two persons, professing to hold
opposite views touching the issue of a future uncertain event, mutually agree that,
depending upon the determination of that event, one shall win from the other and
other shall pay or handover to him, a sum of money or other stake”

• Essentials
1) The parties have opposite views regarding an uncertain event.
2) There are chances of gain or loss to the parties on the determination of the event one way
or the another.
3) The parties have no other interest except winning or losing of bet.
4) Neither party to have control over the event
• Contract Of Insurance
 A transaction of insurance resembles a wager.
 Every contract of insurance is a wager if the insurer has no insurable interest in the event
upon which insurance money is payable.
 The insurance interest lies normally in that the event is one which is prime facia adverse to
the interest of the insurer.
 If a insures cargo which he has loaded on a vessel , his contract is not a wager because his
property is at risk during the voyage; but if has no cargo on board, the contract is a wager;
because if the vessel is not lost, he loses the amount of premium.
 Section 6 of the Marine Insurance Act 1963, provides that every contract of marine
insurance by way of wager is void; and that a contract of marine insurance is deemed to be
a wagering contract where the assured has not an insurable interest