Types of Void Agreement in Contract Law

Types of void agreements are provided in contract law under sections 24 to 30 and section 56. In a social relationship, agreement and contract are the legal terms which are widely used. Here, the legally enforceable agreements are called Contracts.

In this post, we will discuss What is void agreement? and the types of void agreement. So, let's see;

Agreement Definition in Law of Contracts

In section 2 (e) of the Act, the agreement is defined as “every promise and every set of promises, forming the consideration for each other”.

Promise 2(b) + Consideration 2(d) =Agreement 2(e).

The agreement is a promise which forms the consideration for each other. Here, we have to define the promise and consideration. But, before that let's understand what is the enforceability of law.

What is Void Agreement Meaning?

Void agreement means, Section 2(g) of the Indian Contract Act, 1872 has provided the void agreement definition as," An agreement which is not enforceable by law is said to be Void Agreement."

In the Law of Contracts, there are certain types of void agreement and these can be found under Sections 24 to 30 and section 56 of the Indian Contract Act, 1872.

For example, an agreement to purchase smuggled goods is void. These are void agreement examples.

Types of Void Agreements in Contract Law

Types of void agreement are discussed here. The eight (8) types of void agreements provided under the Law of Contracts, these are as follows;

Agreement in which the Consideration and/or Object is unlawful either in whole or in part, (Sec. 24)
Agreement without Consideration (Sec. 25)
Agreement in restraint of marriage (Sec. 26)
Agreement in restraint of trade (Sec. 27)
Agreement in restraint of legal proceeding (Sec. 28)
Unmeaning agreement (Sec. 29)
Wagering agreement (Sec. 30)
To do impossible act (Sec. 56)

So, let's discuss the various types of void agreements;

1. Agreement in Which the Consideration and/or Object is Unlawful either in Whole or in Part (Sec. 24)

This is the first type of void agreement and it is provided under Section 24 of the Indian Contract Act, 1872. Section 24 of the Act stated that "If any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object, is unlawful, the agreement is void."

The basic meaning of this section is that if the consideration, is in a whole or in a part which is unlawful or if the product of the agreement is illegal then the agreement is void.

Example: A made an agreement with B for the exchange of drugs and medicine for Rs. 1000, here a void contract is formed because the consideration of an agreement is not legal in part, therefore the agreement is void.

In the above example, the object of an agreement is illegal. And, in this example, if we remove the drugs from the object then the agreement would be valid in the eye of law.

2. Agreement Without Consideration (Sec. 25)

The meaning and definition of consideration are given under section 2 (d) of the Indian Contract Act, 1872 as “ When at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing something, such act or abstinence or promise is called a consideration for the promise.”

In the Indian Contract Act, 1872, section 25 stated that "An agreement without consideration is void unless it is in writing and registered, or is a promise to compensate for something, or is a promise to pay debt time-barred by the limitation law."

So, all agreements without consideration are void but this section has some exceptions to this rule. These are;

Natural Love and Affection,
Promise to Compensate,
Promise to Pay Time-Barred Debt.

The general rule is that the agreement is void without consideration. But, there are certain exceptions to this rule as per section 25 of the Indian Contract Act, 1872.

Example: X promises Y to pay Rs.10,00,000/- if B deliver A’s smuggled goods beyond the country. In this example the object of X’s promise is illegal, and the consideration for Y’s promise being in part is unlawful.

3. Agreement in Restraint of Marriage (Sec. 26)

According to section 26 of the Indian Contract Act, 1872, "Every agreement in restraint of the marriage of any individual, other than a minor is void."

As per this section, any agreement which is made to restraint the marriage of any major person is null and void. Therefore, an agreement in restraint of marriages is void. But, the agreement made to restraint the marriage of a minor person is not void.

Example: A promises not to marry S if B pays him Rs. 50,000/-. This type of agreement is in restraint of marriage and this is a void agreement.

In the case of Shrawan Kumar v/s Nirmala, the defendant made a promise to the plaintiff to marry him, but the plaintiff is already married still the defendant made an agreement to marry the plaintiff. The court held that the plaintiff is already married and the present agreement is in restraint of their marriage, hence the present agreement between plaintiff and defendant is void.

4. Agreement in Restraint of Trade (Sec. 27)

Section 27 of the Indian Contract Act, 1872 deals with the agreements in restraint of trade, in this section, it has been provided that "Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void."

In simple words, the agreement which is made to restrain any person from performing any trade, business, practising any profession or any commercial activity is expressly a void agreement. Therefore, any agreement which is in restraint of practising the trade or business would be deemed null and void. So, an agreement in restraint of trade is void.

However, Article 19 (1)(8) of the Constitution of India guaranteed the fundamental rights of freedom to practice any form of trade and business which is legal in the eye of law.

Example: If any person sells his business to any other person with his goodwill then the buyer has the right and can ask the seller to refrain from performing the same business in the same locality.

Exceptions to Section 27

There are two exceptions to this rule.

Sale of Goodwill

This is principle will be referred to that when a person sells his business along with the goodwill of his business to the other person, then the buyer can impose certain restrictions on the seller like restraining the seller from practising the same business in the same locality.

Partnership Act

Three provisions of the partnership act provided for the restriction of trade and business. These are as follows:

Section 11, states that none of the partners would carry on business till the continuity of the business.
Section 36, provides the remaining partners to prevent the outgoing partner from opening any business similar to the firm or business in the same locality subject to certain restrictions.
Section 54, prevents all the partners from engaging in any other business of a similar kind after the dissolution of the firm or business.

In the case of Madhub Chander v/s Raj Commar, 1874, the plaintiff and defendant are competitors in the same business and in the same area/locality. The defendant wanted to reduce the competition with the plaintiff, so the defendant offered some amount of money to the plaintiff to stop his business in this locality. Then the plaintiff agreed and closed his business but later the defendant declined to pay the amount to the plaintiff. Therefore, the plaintiff filed a recovery suit against the defendant.

In the Court, it was held that this case did not come under section 27 of the Indian Contract Act, 1872, because the restraint to perform business was only partially as he was asked to stop his business in one locality but this section applied when there is a complete restraint of business, therefore the plaintiff is entitled to recover the amount of money and can practice his business in any other locality.

5. Agreement in Restraint of Legal Proceeding (Sec. 28)

As per 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."

In other words, it is the type of agreement that prevents or prohibited any person from enforcing his legal rights under a contract through the legal process of courts and arbitration etc. Therefore, such an agreement is expressly null and void.

It is also noted that any settlement that arises between the parties outside the court regarding the withdrawal of the suit does not come under the preview of section 28 of the Act. Because there is no restriction upon the parties on the compromise of the suit outside the court and does not affect the institution of the proceeding.

Exceptions to Section 28

Two exceptions can be found in section 28, these are;

1. Existing Disputes to Arbitration

If there is any terms and conditions in the agreement that presently arises questions and disputes shall be decided by the arbitration then such conditions are valid.

2. Future Disputes to Arbitration

In this type of agreement, both parties agree to settle the disputes that arise in future should be solved by referring to the arbitration and any amount awarded shall be recovered from the contesting party.

6. Uncertain Agreement (Sec. 29)

Section 29 provides that "Agreements, the meaning of which is not certain, or capable of being made certain, are void."

In this type of agreement, the meaning of the agreement is uncertain cannot be a valid agreement, which means voiding a contract. If there is no assurance about the essential meaning of the contract, then the contract couldn't further ahead. But, if the uncertainty in the agreement is removed then the agreement would be valid.

Therefore, if the meaning arising from the agreement is uncertain or ambiguous the agreement deems. to be a void agreement.

Example: A promised to sell his vehicle for a certain amount to B and B agrees for the same. Here, the contract cannot be formed because which type of vehicle he wants to sell does not mention in the agreement.

7. Wagering Agreement (Sec. 30)

Section 30 of the Act, provided that, "Agreements by way of wager are void, and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide by the result of any game or other uncertain event on which any wager is made."

In this section, it is stated that when two persons enter into an agreement where if some future events happen then the first party will pay the agreed amount to the other party and if some future events do not happen then the second party will pay the agreed amount to the first party.

In simple words, wagering agreements are simple "bets" between the parties in which whereas one party will predict the future events that will happen and the other party will deny that the future event will not happen.

Example: There is a cricket match between India and England. Where one party says that if India wins he will get paid by the second party whereas the second party says that if England win he will get paid by the first party. Such agreements are void. Gambling is the best example of wagering agreements.

But in this section, one exception has been provided that's is the horse race. The section says that any wagering agreement relating to horse race shall not be considered voiding a contract.

Essentials of Wagering Agreement

Here, we will discuss some essentials of the wagering agreement, if all the essentials of wagering agreements are met then the agreement will be void. The essentials of wagering agreement are as follows;

The most important essential element of a wagering agreement is that the agreement must be based on uncertain future events.
There should be an equal opportunity of loss and gain, which means both the parties in the wagering agreement must have equal opportunities to win or lose.
Both parties to the wagering agreement should not have any control over the uncertain future event. If any one of the parties has the access to control the outcome of the uncertain future event then this is not deemed as a wagering agreement.
Any of the parties to the wagering agreement should not have any other interest except for stack to win or lose.

The below-mentioned agreements are not considered as wagering agreements, these are;

Chit Fund
Transactions in Share Market
Insurance Contracts

8. To Do Impossible Act (Sec. 56)

As per Section 56 of the Act, it is provided that "An agreement to do an act impossible in itself is void." Therefore, any agreement which has been entered to perform any impossible activity should be considered as a contract void.

This impossibility to perform an act is known as the Doctrine of Frustration.

Section 56 has two impossibilities, these are;

1. Initial Impossibility

The first paragraph of section 56 of the Act lays down that "An agreement to do an act impossible in itself is void."

2. Impossibility after Contract

The second paragraph of section 56 of the Act stated that "A contract to do an act which after the contract is made, becomes impossible, or, because of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.

In Krell v/s Henry, 1903, the defendant hired a single room from the plaintiff for 2 days as the coronation possession of the king would pass along that road. And because of this a certain amount of the rent was paid earlier. But the possession of the room was cancelled as the king fell sick. So the defendant refused to pay the full amount of the contract.

In the above case, it was held that the main object of entering into a contract is the coronation possession and it was the main essence of the contract, but the main object of the contract was frustrated as the king fell sick and the possession was cancelled. So, the defendant was not held liable to pay the rest of the rent of the room.

Conclusion

The main object of the Contract Act is to promote and maintain the contractual relationships between the parties but it is also important to prevent such contracts which if performed then the general public have to suffer from it. In this Act, the types of void agreements are provided under Sections 24 to 30 and section 56.

Referred Books:

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