Void Agreements under the Law of Contract

INTRODUCTION

A Contract is said to be void when it does not fulfill all the essential conditions under Section 10 of the Indian Contract Act, 1872. There are mainly 5 essentials that have to be fulfilled to make a contract valid.

Section 23 of the Indian Contract Act, 1872 provides that every agreement of which the consideration or object is deemed unlawful shall be considered void in the eyes of law.

(a) It is forbidden by law:

Here law would also include the rules regulations, notifications and the like that are issued under the powers granted by a statute to an authority.

ILLUSTRATION:- X sold imported foreign goods without a license to B. The sale is unlawful as the sale of liquor without a license is forbidden by the law, i.e., The Excise Act. This renders A unable to enforce the payment of such goods.

(b) If it defeats the Provisions of any Law, but not directly prohibited by any Law:

ILLUSTRATION:- A’s estate is sold for arrears of revenue. Under the provision, the defaulter is prohibited from purchasing the state. Upon an understanding with A becomes the purchaser and agrees to convey the estate to A. Upon receiving from him the price which B has paid. The agreement is void.

(c) If it is Fraudulent:

ILLUSTRATION:- Object or consideration of an agreement is fraudulent. An agreement with such an object or consideration is unlawful and void.

(d) If it involves or Implies injury to a person or property of another.

ILLUSTRATION:- Where it creates injury to a person or the property of another. An agreement with such an object or consideration is unlawful and void.

(e) If the court regards it as immoral.

ILLUSTRATION:- X gave Rs. 10,000 to Y a married woman to obtain a divorce from her husband. X agrees to marry when divorce has been taken. X would not recover the amount.

The following categories of agreements are considered Void agreements provided under Chapter II of the Indian Contract Act, 1872-

1. WITH UNLAWFUL OBJECT OR CONSIDERATION:

Section 24 of the Indian Contract Act, 1872 delineates the instance where only a part of the consideration or the object has been rendered unlawful.

Section 24 follows the general principle laid down in Section 23, which provides, which lays down various objects and considerations, which are either lawful or unlawful and determine the validity of the contract.

When any part of a single consideration for one or more objects or any part of any one of the several considerations for a single object is deemed unlawful, the resulting agreement shall be considered void.

When there are two sets of distinct promises, and when the void part of the agreement or contract, can be perfectly and properly separated from the rest (unlawful part), the former lawful part does not become invalid and can be enforced as a valid contract.

CASE LAW- Alice Mary Hill v William Clarke

In this case, the plaintiff (Hill) a married woman had agreed to live in adultery with the defendant as well as serve him as the housekeeper.

In return, the defendant had agreed to pay the plaintiff a consolidated remuneration (payment) of 50 Dollars per month.

In this instance, the Court held that the lawful part of the agreement cannot be separated from the unlawful part as the entire agreement was rendered void.

The plaintiff was unable to recover any form of compensation, even for the service she provided as a housekeeper.

GENERAL OBSERVATION- If the agreement between the two parties in the instant case had a stipulated payment of 30 Dollars for housekeeping and another 20 Dollars for living in adultery, then the plaintiff would have been able to enforce the payment of her housekeeping services, as it was valid and could be separated from the unlawful part of the contract.

2. AGREEMENTS IN RESTRAINT OF MARRIAGE under Section 26:

As per Section 26 of the Indian Contract Act, 1872, any agreement which causes or results in some sort of restraint in the nuptial proceedings of another individual, other than a minor, then such an agreement shall be deemed void.

In simpler words, such agreements or contracts, which are restraining an adult's freedom of choosing a partner for marriage are against public policy and are considered void.

CASE LAW- Lowe v. Peers

In this case, the defendant (Peers) had promised the plaintiff (Mrs Lowe) that he would not marry any other person, other than the plaintiff and also promised to pay an amount of 200 pounds if the promise was not fulfilled. The agreement was rendered void as it stood against the public policy of laws.

CASE LAW- Lafatunissa v. Shaharbanu

In this case, it was held that any agreement comprising of a condition in Wakf, that a widow would forfeit her right to claim maintenance on re-marriage, shall not be considered as an agreement in restraint of marriage.

GENERAL OBSERVATION- The promise in the aforementioned case was not in the form of a promise to marry a particular lady but in the form of a restrictive agreement containing a promise to not marry anybody else.

Whether any agreement puts a total restraint on any person's right to marry, or only a partial restraint imposing a curtailment on marrying for a particular period or marrying a certain person, the agreement is void.

3. AGREEMENT IN RESTRAINT OF TRADE under Section 27:

Section 27 of the Indian Contract Act, 1872 provides that all agreements curtailing the freedom of a person exercising any lawful profession, trade or business are deemed to be void.

Since such agreements which curtail trade, profession or business are against public policy, they are considered to that extent as void.

Such type of restriction is mostly geared towards avoiding competition and has monopolistic tendencies. Both aspects of such agreements, against the individual and towards the society, are practices that are strongly discouraged by law.

CASE LAW- Madhub Chander v. Rajcoomer Dass

In this case, where A and B who carried out business in the same locality in Kolkata agreed. B offered to pay A some amount of money if A closed his business.

A closed his business but later sued B to recover the amount of the agreement he entered into with B to recover the amount promised.

It was held that even though the order had been partial in curtailing A from conducting his business in a particular area, but since it put a restraint on trade, it was held to be void and consequently, A was not allowed to recover the amount.

GENERAL OBSERVATION- Any agreement that renders one of the parties unable to carry on trade, or prevents them from providing services, for any period shall be considered.

4. AGREEMENT IN RESTRAINT OF LEGAL PROCEEDINGS under Section 28:

Section 28 of the Indian Contract (Amendment) Act, 1997 provides for two agreements that are considered regarding legal agreements:

a. An agreement by which one party is debarred from enforcing his rights through legal proceedings.

b. An agreement that places time-constraint for enforcing a legal right through legal proceedings.

CASE LAW- Tapash Majumdar v. Pranab Dasgupta

In this case, a rule of the East Bengal Club for conducting an election for the Executive Committee of the Club authorizing the Executive Committee to take action against any of its members who approached the Court to challenge the election process of the Club was held contrary to the provisions of Section 28 of the Contract Act and was deemed to be void.

EXCEPTIONS TO THIS PROVISION-

(i) Contracts or agreements that refer any future dispute between two parties to Arbitration.

(ii) Contracts or agreements that refer already existing questions or disputes to arbitration.

GENERAL OBSERVATION- Besides the exceptions provided, it can be construed that any agreement that bars a person from seeking legal remedy or recourse for the enforcement of a valid is against public policy and is considered to be void.

5. AMBIGUOUS and UNCERTAIN AGREEMENTS under Section 29:

Section 29 of the Contract Act provides that certain agreements, the meaning of which is not unambiguous or capable of being made certain, are to that extent void.

For a valid agreement, there must be no ambiguity between the parties about their rights and obligations. Ambiguity or uncertainty regarding the terms of the agreement shall render the contract void.

CASE LAW- Kalyan Singh v. Ranjot Singh

In this case, there was an agreement between the plaintiff and the defendant regarding the purchase of an item. The payment was to be made by the defendant through a cheque, the enforcement of that cheque, was however contingent on the delivery of the goods.

But, the said cheque was dishonoured due to insufficiency of funds.

In the resolution of the dispute, it was devised by the Court that there was ambiguity in payment methods, an essential part of the agreement. Such uncertainty had rendered the agreement void under the provisions of Section 29.

6. WAGERING AGREEMENTS under Section 30:

In general parlance, agreements through a wager are considered void.

Agreements by way of wager are void and no suit brought for the recovery of anything alleged to be won on any wager, or entrusted on the result of any future/uncertain event is void to the extent of application of Section 30.

A Wagering agreement must satisfy the following essentials-

1. The parties have opposite or polar views regarding the outcome of the uncertain event. (Carlill v. Carbolic Smoke Ball Co.)

2. There are opportunities of gain or loss to the parties on the determination of the event one way or other. (Diggle v. Hige)

3. The parties have no other interest except winning or losing. (Brahma Dutt Sharma v. LICI)

CASE LAW- Carlill v. Carbolic Smoke Ball Co.

Hawkins, J., has delineated that a wager is an agreement where the parties to the wager should have opposite views concerning a future uncertain event. The opposing views could be concerning a past or future event or facts as well.

Examples of Wagering Agreements-

• Prize money on Lottery Tickets

• Speculative Transactions

• Tej Mandi transactions

WAGERING AGREEMENTS & COLLATERAL TRANSACTIONS- Even though a wagering agreement is void and unenforceable by law, it is not forbidden by law and hence the object of a wagering agreement is not unlawful as per the provisions of Section 23 of the Indian Contract Act, 1872.

The above principle was upheld by the Supreme Court in Gherulal Parekh v. Mahadeoda when it allowed for claims of one of the parties who were in a partnership for carrying on wagering agreements, and a claim was made for reimbursement of loss.

7. AGREEMENTS TO PERFORM AN IMPOSSIBLE ACT under Section 56:

Any agreement which entails the performance of an impossible task shall be void to the extent of its impossibility as per Section 56 of the Contract Act.

For further explanation on this point go- HERE.

8. AGREEMENTS WITHOUT CONSIDERATION under Section 25:

It is well known that any agreement without consideration shall be considered void. This principle has been laid down in Section 25 and Section 10 as well.

There are, however, certain circumstances under which agreements may still be valid without any consideration.

Let us discuss the exceptions in brief:

Promise due to "Natural Love and Affection"

This provision falls under Section 25(1) of the Act.

• The parties to the agreement must be standing in a near relationship with each other.

• Promise, in this case, must arise out of natural love and affection

• The promise must necessarily be in writing and registered under competent authorities.

Compensation for "Past Voluntary Service"

Section 25(2) of the Contract Act covers the cases where a person without the knowledge of the promisor or his request as such, does a service for them, without the knowledge of the promisor undertakes to compensate him or her.

Therefore, voluntary service is required to seek remedy under this Section. Services provided by a person other than the plaintiff will render such contract unenforceable.

Promise to pay a "time-barred debt"

This is another situation where an agreement is valid even without consideration covered under Section 23. This exception however has certain essentials-

1. The promise must be to pay wholly or in part, a time-barred debt i.e. money that was borrowed by a lender, but the repayment of such loan cannot be enforced as the statute of limitation of such remedy has passed.

2. It is also essential that such promise be provided in writing and is registered by the person himself or his or her authorized agent.

CONCLUSION

A careful analysis of all the points mentioned above leads us to the conclusion that while it is essential to keep in check whether an agreement fulfils conditions under Section 10 of the Contract Act, 1872, we must also comprehend the other complexities which render a contract unenforceable. Even though an agreement fulfils all the conditions of Section 10, if it is against public policy as per Section 23, it becomes void to the extent of its nature being against public policy.