Post Graduate Programme

1
in Management (PGPM)

LEGAL ASPECTS OF BUSINESS

(LAB)

Dr Parul V Gupta
PhD (Law), LL.M., PGDBM

Dr. Parul Gupta

 SESSION 5
2

Void Agreements & Void Contracts

 Doctrine of Supervening Impossibility /Doctrine of
Frustration
Wagering Agreements
Contingent Contracts

Quiz One – Session 1 to 4 Today at 6:00

pm

Dr. Parul Gupta

 VOID CONTRACTS
3
Section 2(g)
  “An agreement not enforceable by law is said
to be void”
(i) Void ab initio – Void agreements

Section 2(j)
“A Contract which ceases to be enforceable by
law becomes void when it ceases to be
enforceable”
(ii) Void due to the impossibility of its performance –
Void Contracts
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 (i) VOID CONTRACTS
4

The Doctrine of Supervening Impossibility or

Frustration
1. Destruction of the object necessary for performance of
the contract.
Case: V.L. Narasu v P.V.S. Iyer
2.Change of law – Outbreak of pandemic/ national
emergency
3. Death or personal incapacity
Case: Robinson v Davison
4.Out break of war
5. Non-existence of particular state of things which forms
the basis of the contract
Case: Krell v. Henry
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 (i) VOID CONTRACTS
5

The Doctrine of Supervening Impossibility or

Frustration

Case 5.1: Sachindra Nath v Gopal Chandra

Discussion Point
Can the defendant avoid the performance of
the contract being a void contract on the
ground of frustration?

Dr. Parul Gupta

The Doctrine of Supervening Impossibility
6
or Frustration
Judgment &Explanation
It was held that although it was possible that the defendant would not have
paid such a high rent apart from the expectation of deriving high profits
from the British troops yet that was not sufficient to make out a case of
frustration. A situation like this can be described as one of
commercial hardship, which may make the performance unprofitable
or more expensive or dilatory, but is not sufficient to excuse performance
on the ground of frustration. It does not bring about a fundamentally
different situation such as to frustrate the venture. Hence such cases
may not fall within the purview of Section 56.

Take Away
There is a difference between commercial
difficulty and supervening impossibility

Dr. Parul Gupta

 (ii) VOID AGREEMENTS – Void ab
Initio
7
 (iii) Void agreements as per the provisions of Indian Contract
Act, 1872
 (1) Any agreement with a bilateral mistake is void: Section 20
 (2)Agreements which have unlawful consideration and objects are
void: Section 23 & 24
 (3) Agreements made without consideration is void: Section 25
 (4) Agreement in restraint of marriage of any major person is void:
Section 26
 (5) Agreement in restraint of trade is void: Section 27
 (6) An agreement the terms of which are uncertain is void: Section
29
 (7) An agreement contingent upon the happening of an impossible
event is void: Section 36
 (8 ) Agreement to do impossible acts is void: Section 56
 (9) An agreement by way of wager (betting/gambling) is void:
Section 30
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 VOID AGREEMENTS –
Agreements in Restrain of Trade
8

Agreement in restraint of trade is void :

Section 27

Case 5.2: GBCL v CCC

Discussion points
Discuss the legal aspects of Para 14 of the
contract – Was the contract void as it in
restrain of trade?

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 VOID AGREEMENTS – In Restrain of
Trade
9

Judgment &Explanation
The 1994 agreement could not be considered as substituting
1993 agreement because the purpose of both the agreements
was different. Mutuality for substitution of agreement
requires both consensus ad idem between the parties and an
intention to substitute the original agreement with the new
one. No such intention of the parties to substitute 1993
agreement could be construed from 1994 agreement.
So far as the issue of restrain of trade is concerned, in India, a
contract in restraint of trade is one by which a party restricts
his future liberty to carry on his trade, business or profession
in such manner and with such person as he chooses unless
such a restriction is in furtherance or promotion of trade in
which he is presently voluntary engaged.

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 RESTITUTION
10

Equating the benefit/loss

In Case of Void Contract – Restitution applies
In case of voidable contracts – Restitution
applies if aggrieved party decides to rescind the
contract
In case of void Agreements – No Restitution
 Contracts with incompetent parties
 If an agreement is known to be void etc

In case where amount serves as security –

No Restitution
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 WAGERING AGREEMENTS
11

Section 30

“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 result of
any game or other uncertain event on
which any wager is made.”

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 Let Us Discuss
12

P and Q debate as to whether it would rain

on a particular day or not P promising to
pay Rs. 1000 to Q if it rained, and Q
promising an equal amount to P, if it did
not.

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 WAGERING AGREEMENTS
13

Essentials of Wagering Agreement

 (i) Promise to pay money or money’s
worth
 (ii) Uncertain event

 (iii) Equal chances of gain or loss to the

parties
 (iv) Neither party to have control over the
event
 (iv) No other interest in the event

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 Let us Discuss
14
Case1
A contracts to pay B Rs. 10,000 if B’s house is burnt.

Case 2
A contract for the sale of goods wherein the seller
agrees to deliver the goods after a week provided
the ship carrying his consignment reaches safely
on time.

Dr. Parul Gupta

 CONTINGENT CONTRACTS
15

Section 31,
“A contingent contract is a contract to do or not
to do something, if some event, collateral to
such contract does or does not happen.”

 There should be existence of a contingency;

happening or non-happening of some event in
future.
 Contingency must be uncertain.
 The event must be collateral, for example incidental
to the contact.

Dr. Parul Gupta

 CONTINGENT CONTRACTS
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Rules Regarding Contingent Contracts

 (i) Enforcements of contracts contingent on
happening of a future uncertain event (Section 32)
 According to Contract formed between A and B, A has to
sell goods to B, if ship comes there safely.
 (ii) Enforcement of contracts on the non-
happening of a future uncertain event (Section 33)
 A agrees to pay B a sum of money, if a certain ship does
not return. The ship is sunk.
 (iii) Contracts contingent on how a person will act
within a fixed time (Section 34)
 A agrees to pay B a sum of money, if B supplies ten tons of
olive oil in one week.
Dr. Parul Gupta
 CONTINGENT CONTRACTS
17
 Rules Regarding Contingent Contracts
 (iv) Contracts contingent on a specified event
happening within a fixed time (Section 35(1))
 There was a contract formed between A and B, according to
which A has to sell goods to B, if the ship comes back within
10 days.

 (vi) Contingent on happening of an impossible event

(Section 36)
 if X agrees to pay Y Rs. 10,000 (as a loan), if two straight
lines should enclose a space

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 Difference Between Wagering
Agreements and Contingent Contracts
18

S. Basis Wagering agreement Contingent Contract

No.
1 Nature It is essentially of contingent It may not be of wagering
nature. nature.
2 Validity It is void. It is valid.
3 Interest in Parties have no other interest The parties have other
subject matter in subject matter other than interest also in the subject
to win or lose. matter.

4 Reciprocal It consist of reciprocal It does not contain

promises promises. reciprocal promises.
5 Future event It is the sole determining It is only collateral to the
factor. contract.
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 19

Dr. Parul Gupta