CS Shruti Patwardhan

Shruti-Patwardhan1

Indian Contract Act, 1872 has stipulated following six essential elements to “Valid Contract”:

1. Offer and acceptance

2. Intention to create legal obligation

3. Free consent of parties

4. Competent Parties

5. Consideration and

6. Lawful Object

In the previous articles ESSENTIALS OF VALID CONTRACT- PART I , ESSENTIALS OF VALID CONTRACT- PART II and ESSENTIALS OF VALID CONTRACT- PART III we have briefly analysed the above-mentioned six elements of Valid Contract as per Indian Contract Act, 1872.

According to section 2(g) of Indian contract Act, 1872, “a void agreement is an agreement which is not enforceable by law”. Thus a void agreement refers to the agreement that is invalid agreement which cannot be legally binding. In such cases, the parties are not entitled to the benefits assumed at the time of execution of agreement.

In this article let us analyse and understand the condition when the agreement is treated as “void agreement” as stipulated under the provisions of Sections 24 to 30 of the Indian Contract Act, 1872.

1. Agreements the consideration or object of which is unlawful in part (Section 24):

If any part of a single consideration for one or more objects, or any one or any part of any one of several consideration of a single object, is unlawful, the agreement is void.

Illustration:

X promises to supervise, on behalf of Y (real manufacturer of car) and an illegal traffic in other articles. B promises to pay to A salary of Rs.10,000 p.a. The agreement is void because the object of A’s promise and the consideration for B’s promise being in part unlawful.

Union Carbide Corporation v. Union of India

Non-compoundable offences, which are a matter of public concern, cannot be subject matter of private bargains and administration of criminal justice should not be allowed to pass from the hands of judges to private individuals. Where the offence is of public nature, no agreement can be valid that is founded on the consideration of stifling of a prosecution for it. The payment of 470 million US dollars by the Union Carbide Corporation to Union of India was held not to be stifling of prosecution and the payment not unlawful.

2. Agreements made without consideration (Section 25)

Consideration is one of the essential elements of Valid Agreement. Hence any agreement made without consideration is void / invalid agreement.

The exceptions to this rule are:

(1) the registered agreement executed on account of natural love and affection between parties standing in a near relation to each other; or

(2) a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promisor was legally compellable to do; or (3) a promise, made in writing and signed by the person to be charged therewith or representative to pay wholly or in part debt of which the creditor might have enforced payment but for the law for the limitation of suits; or

(4) Gift by donor or inadequate consideration at promisor’s free will

Illustration:

X promises, for no consideration, to give to Y Rs.1,000. This is a void agreement.

A, for natural love and affection, promises to give his son, B, Rs.1,000. A puts his promise to B into writing and registers it. This is a contract.

A agrees to sell a dog worth Rs. 10,000 for Rs. 1,000. A’s consent to the agreement was freely given. The agreement is a contract irrespective of the inadequacy of the consideration.

3. Agreements in restraint of marriage (Section 26)

Every agreement in restraint of the marriage of any person, other than a minor, is void.

Illustration:

X promised to marry none else except Y and in default pay her Rs.1,00,000. X married to Z and Y sued X for the recovery of Rs.1,00,000. In this case Y is not entitled to recover anything because this agreement is in restraint of marriage and as such agreement is void.

4. Agreements in restraint of trade (Section 27)

Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.

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.

Illustration:

A has sold his business having Goodwill to B. In this matter B imposes a condition on A to not to commence business in same locality for certain duration. This is valid contract.

Case Law: Mahbub Chander v. Raj Coomar

Two shopkeepers entered into an agreement that one will pay the other to close his business in the same locality. One of which kept the promise and closed the shop whereas the other shopkeeper stepped back and refused to pay to other. It this matter the court held that the words “restrained from exercising a lawful profession, trade or business”, do not mean an absolute restriction, and are intended to apply to a partial restriction, a restriction limited to same particular place. Hence it was held that the agreement was void.

5. Agreements in restraint of legal proceedings (Section 28)

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.

This section shall not render illegal 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 and amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.

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.

Case law: Food Corporation of India v. New India Assurance Co. Ltd.

The clause in the agreement that the appellant would not have any right under the bond after the expiry of six months from the date of termination of the contract has been held not to be contrary to section 28 of the Act nor it imposed any restriction to file a suit within six months.

6. Agreement the meaning of which is uncertain (Section 29)

The terms of the agreement must be certain and unambiguous. According to Section 29 of the Indian Contract Act, 1872, “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.

A agrees to sell B one hundred tons of oil of a specified description, known as an article of commerce. There is no uncertainty here to make the agreement void.

7. Agreements by way of wager (Section 30)

Agreements by way of wager are void; and no suit can be brought for recovering anything alleged to be won on any wager, or entrusted to any person to stand for the result of any game or other uncertain event on which may wager is made.

Exception: This section does not 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.

Conclusion : In accordance with the provisions of sections 24 to 30 of the Indian Contract Act, 1872, the agreement must not have been expressly declared void (invalid or not legally binding) to become invalid in the eyes of law. Under these provisions, agreement in restraint of marriage, agreement in restraint of legal proceedings, agreement in restraint of trade and agreement by way of wager have been expressly declared void.

Although we have briefly analysed Sections 24 to 30 of the Indian Contract Act, 1872 other sections i.e. Section 36 (Agreements contingent on impossible events) and Section 56, (Agreements to do impossible acts) has also to be considered for validity of agreement. Agreements the meaning of which is uncertain or an agreement to do an impossible act are void agreements.

Case laws sources: www.indiankanoon.org

(In case of any inconsistency or clarification/suggestions, Author can be contacted for further details at csshruti2007@gmail.com)

Disclaimer: The views and opinions expressed in this article are those of the author. The legal information is not advice and should not be treated as such.

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