Void Contracts with Examples
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.
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:
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(a) A, agrees with B that she will not marry C. It is a void
agreement.
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(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:
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(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 a 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 of 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 to the general rule that all agreements in restraint of trade are
void:
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 carrying 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 the 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 the 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:
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(a) A agrees to pay B Rs. 1000 if two straight lines should enclose a
space. The agreement is void.
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(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 the 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 the 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 the object of the
contract is not to stir up litigation bat to assist others 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.,
an 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.
Examples of unlawful contracts:
An unlawful contract is a contract that is illegal or against the law. Some examples of unlawful contracts include:
A contract for illegal goods or services:
For example, a contract to buy or sell illegal drugs or a contract for prostitution services would be unlawful.
A contract that is against public policy:
Some contracts may be against the principles of justice, fairness, or morality and are therefore considered unlawful. For example, a contract that requires one party to commit a crime or a contract that is designed to defraud someone would be unlawful.
A contract that violates a law or regulation:
A contract that violates a specific law or regulation, such as a contract that requires someone to do something that is prohibited by law, would be unlawful.
A contract that is entered into under duress or undue influence:
If one party was forced or pressured into entering into a contract against their will, the contract may be considered unlawful.
It's important to note that the legality of a contract can depend on the specific laws and regulations of the jurisdiction where the contract was formed
Conclusion:
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?
