What is void agreement

Agreements specifically declared void under contract Act 1872

1. Introduction:

Section 2(g) defines void agreement as ‘an agreement not enforceable by law is said to void.’ A void agreement does not give rise to any legal consequences and is void ab initio (from the beginning). According to Section 10, an agreement, in order to become a valid contract, must not be one of those that are ‘expressly declared’ to be void by the law.
Void agreements, What is Public Policy, Contract Law


The agreements that are expressly declared to be void are as follows: 

2. Void Agreements

Void agreements may broadly be classified as:
(1) Agreements contrary to (express provisions of) law, and
(2) Agreements contrary to public policy.

(A) Agreements Contrary to (the express provisions) of Law:

(1) Agreement in Restraint of Marriage:

Every individual enjoys the freedom to marry a person of his choice. An agreement which restricts a person from marrying is called an agreement in restraint of marriage. The law regards marriage as the right of every person. According to Section 26 of the Contract Act, 1872, “every agreement in restraint of the marriage of any person; other than a minor, is void.” Law does not favor marriage of a minor. So an agreement restraining the marriage of a minor is valid. It is interesting to note that an agreement to marry a particular person is valid.

Illustrations:

(a) A, agrees with B that she will not marry C. It is a void agreement. 
(b) An agreement by a Muslim at the time of his marriage with his first wife not to marry a second wife during her life would be void. 

(2) Agreements in Restraint of Trade:

An agreement that interferes ’with a person’s right to engage himself in any lawful trade, occupation or profession is called an “agreement in restraint of trade”. Every agreement by which any one is restraint from exercising a lawful profession, trade or business of any kind is to that extent void. [Sec. 27] 

Illustrations: 

(a) Doctors are usually debarred from private practice during the term of their employment in hospitals. But a restraint on an employee not to engage in It similar business, or not to accept a similar engagement, after the termination of service is void.
(b) A Chartered Accountant employed in a company may be debarred from private practice or from serving elsewhere during the continuance service. (Magan La] vs Ambica Mills Ltd.)

(3) Agreements in Restraint of Legal Proceedings:

Section 28 declares the following two kinds of agreements void: 
(i) An agreement by which a party is restricted absolutely from taking usually legal proceedings, in respect of any rights arising from a contract. 
(ii) An agreement which limits the time within which one may enforce his contract rights, without regard to the time allowed by the Limitation Act, 1908. 

(a) Restriction on Legal Proceedings:

If an agreement provides that no party shall go to the court of law, in case of breach, there is no contract and the agreement is void ab initio. However, there are some exceptions which are as follows:
(i) This applies only to rights arising from a contract.
(ii) The parties may agree that neither party shall appeal against the lower court’s decision.
(iii) The parties may agree to select one of the two courts which are equally competent to try the suit.
(iv) The parties may agree that in case of any dispute among the parties, the dispute will be referred to arbitration.

Illustration:

A agrees to sell 2000 kg of sugar to B for Rs. 5000 and the parties further agree that in case of breach of contract by any party, none of them would go to a court of law. The agreement is void:

(b) Curtailing the Period of Limitation:

Any agreement in order to curtail the period of limitation prescribed by the Limitation Act is also void. If the parties make the agreement that either party can sue for breach only within a year of breach of the agreement is void. But the agreement which provides for release or forfeiture of such rights if suit is not brought within an agreed time (say 3 months) are binding between the parties.

Illustration: 

In a contract of fire insurance, there was a clause that if a claim is rejected and suit is not field within three months after such rejection, all benefits under the policy shall be forfeited. The provision was held valid. (Baroda Spinning Co. Ltd. Vs Satyanarayan Marine & Fire Insurance Co. Ltd.)

(4) Uncertain agreements: 

Section (29) “Agreements, the meaning or which is not certain, or capable of being made certain, are void. If the agreement contains terms which are not clear the agreement is not enforceable.

Illustrations:

(a) A agrees to sell to B “a hundred tons of oil”. It is not clear what kind of oil was to be sold. The agreement is void for uncertainty.
(b) A agrees to sell to B “his white horse for rupees five hundred or rupees one thousand. It is not clear which of the two prices is to be given. The agreement is void.

Illustration: 

In Madhub Chander vs Rajkumar, it was held that an agreement whereby one of the parties agrees to close his business against the promise of the other party to pay a certain sum of money, is void, being an agreement in restraint of trade. [1 874] 14 SLR 76]

Exceptions: 

Following are exceptions to the general rule that all agreements in restraint of trade are void”; 

(a) Sale of Goodwill: 

When seller of good will agrees with the buyer to refrain from crying on a similar business within specified local limits, shall be valid provided the limits are reasonable. Reasonableness of restriction will depend on many factors e.g. the area in which the goodwill is effectively enjoyed and the price paid for it.

Illustrations:

A, after selling the goodwill of his business to B promises not to carry on similar business ‘anywhere in the world’. As the restraint is unreasonable the agreement is void. C, a seller of imitation jewelry in London sells his business to D and promises that for a period of two years he would not deal (a) In limitation jewelry in England, (b) In real jewelry in England and (c) In real or imitation jewelry in any part of UK or in France, USA, Russian or Spain etc.
The first promise was held valid while the remaining promises that is (B) and (C) were held void, as such restraint was unreasonable.

(b) Agreements under Partnership Act, 1932:

According to partnership act, the following agreements are not considered in restraint of trade.
(i) A partner may agree not to carry on a business, similar to that of a partnership while he is a partner.
(ii) A partner may agree with other partners that on retiring from the partnership, he will not carry on a similar business within a specified period or within specified local limits. 
(iii) The partners may in anticipation of the dissolution of the firm, agree that some or all of them will not carry on a similar business within a specified period or within specified local limits.
(iv) Any partner may on the sale of goodwill of firm, agree with the buyer of goodwill not to carry on similar business within a specified period or within specified local limits.

(C) Trade Combinations: 

If the object of the agreement is to regulate business and not to restrain it, then it is valid. An agreement between businessmen to regulate prices, output, etc. cannot be regarded as restraint of trade and is valid. Similarly, an agreement to avoid competition is not necessarily unlawful, even if it damages others. But a combination which tends to create monopoly and which is against the public interest is void.

(d) Service Contracts: 

An agreement of service by which a person binds himself during the term of employment, not to take service with anyone else, is not in restraint of lawful profession and is valid.

(5) Wagering Agreement:

Section 30 explains that agreements by way of wager are void. In wagering one party is to win and the other to lose upon a future event which at the time of the contract is of an uncertain nature. A wager is an agreement by mutual promises, each of them conditional on the happening or not happening of unknown event. A wager is a game of chance in which gain or loss is wholly dependent on an uncertain event. The parties to a wager must have no interest in the event’s happening or non-happening except the winning or losing of the betting amount.

Exceptions: 

Section 30 makes an exception in favor of certain prizes for horse racing. According to this section a bet on horse race carrying a prize of Rs 500 or more to the winner has been made valid. But with a view to protect the poor persons from gambling, a bet on a horse race carrying a prize of less than Rs. 500 remains a wager. 

Illustration:

A bets with B and loses. A applies to C for a loan in order to pay B. C gives the loan to A to enable him to pay B In this case an agreement between A and B is void, being a wagering agreement. But contract between A and C is a valid contract because a contract collateral to a wagering is not void.

(6) Agreements Contingent on Impossible Events:

Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known or not to the parties to the agreement at the time when it is made. (Sec 36) " 

Illustrations:

(a) A agrees to pay B Rs. 1000 if two straight lines should enclose a space. The agreement is void.
(b) A agrees to pay B Rs 1000 if B will marry A’s daughter, C. C was dead at the time of the agreement. The agreement is void.

(7) Agreements to do Impossible Acts: 

“An agreement to do an act impossible in itself is void. (Sec. 56, Para 1)

Illustration:

A agrees with B to discover treasure by magic. The agreement is void. 

(B) Agreements Contrary to Public Policy: 

All agreements contrary to Public Policy are void. The term “Public Policy” in its broadest sense means that sometimes the courts will, on consideration of public interest, refuse to enforce a contract. A judge protesting against ‘public policy’ stated, “It is very unruly horse and when once you get astride it you never know where it will carry you”. However, following heads are included under “public policy”. 

(1) Trading with Enemy:

Declaration of war imports a prohibition of commercial intercourse and correspondence with the enemy’s country. Contracts which are entered into before the out-break of war are either suspended till the end of the war or are dissolved.

(2) Trafficking in Public Offices:

An agreement intended to induce a public officer to act corruptly is contrary to public policy. Sale of public offices i.e., appointments in consideration of money are also against Public policy. Such agreements if enforced, would lead to inefficiency and corruption in public life and are therefore held to be bad. 

(3) Interference with Administration of Justice:

It may take any of the following:

(a) Interference with the Course Justice: 

Any agreement which obstructs the ordinary process of justice is void e.g. promise to give money to induce a person to give false evidence is held void. But an agreement to submit to present or future dispute to arbitration is perfectly valid. 

(b) Stifling Prosecution:

In public interest criminals should be prosecuted and punished. Hence an agreement not to prosecute an offender or to withdraw a pending prosecution is void if the offence is of public nature. However, the law allows compromise agreement in respect of the compoundable offence. If a person has committed a crime, he must be punished. But a compromise in case of commercial transactions and an arbitration agreements are valid.

Illustrations:

A promises to drop a prosecution which he has instituted against B for robbery and B promises to restore the stolen property, the agreement is unlawful being opposed to public policy.

(4) Maintenance and Champerty: 

Maintenance is agreement to give assistance financial or otherwise, in defending or launching legal proceedings when one has no legal interest of his own in the subject matter. Champerty is a bargain whereby one party is to assist the other in recovering property and is to share in the proceeds of the action’ under English law. Both these are void.
Under Indian law these are not absolutely void, if object of contract is not to stir up litigation bat to assist other in making a reasonable claim arising out of a contract it is Valid.

(5) Marriage Brokerage Agreements: 

An agreement to procure the marriage of a person is consideration of a sum of money is called marriage brokerage. Such agreements are void e.g., agreement to sell a girl. Similarly an agreement to pay money to the parent of a minor to induce them to give daughter in marriage is void. 

(6) Agreements in restraints of Parental Rights:

An agreement which interferes with parental rights of a legal guardian over his/her child is void as it minor is against public policy.

(7) Agreement tending to create interest opposed to public policy:

Agreement tending to create interest opposed to public duty. Whereby a person agrees to do something which is against his public duty, the agreement is void.

Illustrations: 

Vinod directs his agent Ram to buy a certain house for him. Ram tells him it can’t bought but he himself buys it secretly. Vinod can compel Ram to sell it to him (Vinod) at the price Ram gave for it. 

(8) Agreement to Influence Election to Public Offices:

An agreement with voters to procure their votes for monetary consideration and an agreement with third person to influence. Voters by indirect means are void on the ground of public policy.

(9) Agreement Creating Monopolies:

Agreements having or their object the creation of monopolies are void, being opposed to public policy. (Somu Pillai v. The Municipal Council.)

(10) Agreement Intended to Defraud Creditors:

An agreement the object of which is to defraud the creditors or the revenue authorities is not enforceable, being opposed to public policy.

Final Words:

Void agreements which are not enforceable at law nor they have any legal consequences.
They are void from their beginning and lack their binding authority too. The main reasons behind them that they are either against the public policy or contrary to the express previsions of law.

Relevant Questions and Searches:

What is Void Agreement?
What agreements are specifically declared void agreements under the contract act, 1872?
What is Public policy?
What are the agreements which are void being opposed to Public policy?

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