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 may 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
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