Void Agreements: Agreements in Restraint of Trade, Marriage and Legal Proceedings

A void agreement under the Indian Contract Act, 1872 is a contract that is not legally enforceable right from the outset. In other words, a void agreement is a contract that is deemed to be null and void from the very beginning, and it has no legal effect whatsoever.

According to Section 2(g) of the Indian Contract Act, a void agreement is an agreement that is not enforceable by law. A void agreement is not binding on any party to the contract, and no legal action can be taken to enforce it. It is as if the contract never existed in the first place.

The reasons for an agreement to be void can be various, including illegality, immorality, being against public policy, involving fraud or misrepresentation, and being impossible to perform. Examples of void agreements are agreements to commit a crime or agreements that are prohibited by law.

The legality of Object and Agreements with Unlawful Consideration

When a person or an organisation makes a proposal to another person or organisation and the other person or organisation accepts it forming consideration, which is enforced by law, is called a contract.

The object or the proposal must be lawful i.e.,

1. When it is prohibited by law: when the consideration or the object is prohibited by law, the proposal is deemed to be invalid.
2. If the consideration is of such nature that it would defeat the provisions of any law: if any of the parties defies any provision of law, the consideration will be not lawful.
3. Fraudulent Consideration or Object: if the nature of the transaction contains fraudulent consideration or object, i.e., smuggling, the agreement will be void.
4. If the Court regards it as immoral, or opposed to public policy: if the court regards any part of the consideration as immoral, or opposed to public policies, the consideration will be termed as unlawful.

For Example: C promises to superintend, on behalf of A, a legal manufacturer of indigo, and illegal traffic in another article A promises to pay C a salary of 10,000 rupees a year. The agreement is void, the object of C’s promise, and the consideration for A’s promise, being in part unlawful.

Agreements without Consideration (section 25)

According to sec 25 of the Indian contract act, an Agreement without consideration is void, unless it is a promise to compensate for something done or is a promise to pay a debt barred by limitation law or it is in writing and registered.

An agreement without consideration is void unless: –

1. It is expressed in writing and is registered. It is a contract arising out of natural love and affection.
2. It is promised to compensate fully or in part by the promisor to a person who is already done something voluntarily for the promisor.

Agreements in Restraint of Marriage

Under section 26 of the Indian contract act, agreements which are made in order to restrain someone from marrying other than a minor are not valid, i.e., void. The main idea which made this section was that marrying someone of their own choice is a basic right of every individual and it should not be snatched away. Therefore, any agreement which prohibits someone from marrying another person of his own choice will come under the restraint of marriage.

Rao Rani v. Gulab Rani

In this case, the two parties were the widows of the same man. After the death of their husband, a dispute aroused between them as to who will inherit the land. This case took place in the division bench of the Allahabad High Court.

Agreements in Restraint of Trade

Under section 27 of the Indian Contract Act, a contract between two persons shall not bound a person from not practising or starting his own trade or profession for some consideration. Therefore, a person restraining someone to practice a trade or profession for his own benefit, or restraining him to trade in a particular way for his own benefit will come under restraint of trade.

Conditions that make restraint of trade valid

There are certain conditions that make a restraint on trade during a sale of goodwill valid, these are:

1. The seller can be restrained only from carrying out a similar business.
2. The restraint can be applied only to certain local limits.
3. The limits/restraint should appear to be reasonable.

Agreements in Restraint of Legal Proceedings (section 28)

Under section 28 of the Indian contract act, agreements that restrain either one or both of the parties from going to the courts are not valid or void. When a contract debars a party to the contract from going to the appropriate courts or tribunals or which limits the time to approach a court is void and it comes under agreements in restraint of legal proceedings.

Vulcan Insurance Co. Ltd v. Maharaj Singh

The Supreme Court held that an insurance agreement provision stating that the insurer will not be liable for any damage if the claim is made 12 months after the loss is 

not invalid, as it merely allows for the right accrued to a party under the contract to be forfeited and does not attract the inconvenience of Article 28 of the Contract Act. This new clause, which does not allow for any retrospective effect, would from the date of entry into force of this amendment, make this decision not a good rule. 

Another Supreme Court case can be reviewed in this regard.

National Insurance Corporation Ltd. v. Sujir Ganesh Nayak and CO.

It was held that the clause in the insurance policy relieving the insurer from responsibility for loss and damage was such a condition, unless the claim was made before the expiry of the stated period from the beginning of the loss or damage, even if the period specified therein was less than that prescribed by the law for damage.

Amended Section 28 is not retrospective

It is not retrospective to Section 28. A contract states that the party would forfeit the right to seek relief under arbitration if the arbitration is not claimed within the prescribed time. In an insurance plan, the agreement stipulates that the insurance claim must be made within the time stated therein. Otherwise, the advantages resulting from the strategy would have been removed. The time defined is less than the limitation period for a suit under the contract provided for in the Limitation Act.

However, under the amended Section 28 of the Contract Act, such an extension of the right is impermissible. However, having regard to the fact that the amendment was prospective and that the contract was entered into prior to the amendment, it was found that the condition of the policy was valid in the light of the provisions of Section 28 prior to its 1996 amendment, as was the case with Oriental Insurance Co. Ltd v. Bank of Karur Vysya Ltd[4].

Ambiguous and Uncertain Agreements

Either because the words are unclear or undefined in an agreement or because the agreement is incomplete and may be uncertain. The general rules are that, if the conditions of an arrangement are ambiguous or unlimited, and the intention of the parties cannot be determined with reasonable certainty, no contract shall be enforceable by law.

Section 29 Provides the interpretation, as in Kovuru Kalappa Devara vs. Kumar Krishna Mitter[ii], of a settlement which is to be apparent on the face of it, but the impact can be made on the contract if it is fair to be clear in its significance.

The contract will not be enforceable if this is not so. It is not regarded as ambiguous merely difficult to read. As a party requesting a remedy of the Court in violation of the contract, the principle should be formulated. The duty must be able to describe with sufficient accuracy the obligation to warrant the remedy. The legislation therefore mentioned is more versatile and acknowledges that the solutions which require various degrees of certainty.

Wagering Agreements under Indian Contract Act

When two parties agree and enter into a condition that one party will receive money from the other party on the happening of a future uncertain events, the other party will receive the money from the first party on the non-happening of a future uncertain events. This kind of agreement is a wagering agreement. In a wagering agreement, there should be shared chances of profit and loss. Wagering deals are usually void.

Wager means bet. It’s a chance game where the chance to win or lose is unknown. The probability of winning or losing depends solely on an unpredictable occurrence.

Example: B and C agree with each other of it will rain on Saturday. B will pay C Rs 200 if it rains on Saturday and c will pay B if it does not rain on Saturday. This agreement between B and C is a wagering agreement and it is void.

Exceptions of a wagering agreement

An insurance policy is not an investment

Contracts for insurance are reimbursement contracts. They are signed in order to secure one party’s interest in the deal. The insured is insurable in the property or life in this contract; hence, it is not a settlement.

Competitions for skills are not competitive

Skill plays a significant role in overcoming these competitions successfully. For eg, competitions for crosswords, pictures, puzzles, etc. The awards are awarded here in conjunction with the merits of the solution. These are not wagering competitions. If prizes are contingent upon an opportunity, however, that’s a lottery and a gamble.

For example: – A crossword in a newspaper was provided that the crossword solution would correlate to the solution held with the publisher. It was also specified in the newspaper that the first prize would be awarded. It’s a luck game and therefore a lottery. And then, it’s a bet.[iii]

The market for horse races is not a wager

State governments can, if allowed by local law, award horse race competitions. Any subscription or donation to any reward or amount of money to be awarded to a winner of a horse race of Rs. 500 or higher is, in these cases, not unlawful. In short, agreements are also binding and enforceable to subscribe for or contribute to certain prizes or numbers.

The transaction of the share market is not a wager

The purchase and selling transactions of shares and securities are not wagered in order to receive and distribute stocks. Nevertheless, the contract will only be wagered if the goal is to overcome the price gap.

Sports competitions are not wager 

Sports events like athletics, wrestling, indoor games, football, boxing, cricketing, hockey and so on are not fortunate games. It is measured by competence. They’re not wagers, therefore.

[i] https://www.cambridge.org/core/journals/cambridge-law-journal/article/abs/sinclair-v-brougham/8A340505054CAD89B3BDE30A2F82E293

[ii] https://indiankanoon.org/doc/183366/

[iii] https://accountlearning.com/wagering-agreement-meaning-essentials-exceptions-effects/

[iv] https://lexlife.in/

Author Details: Hitanshi Khandelwal [Student; Amity University, Kolkata]