Void Agreements free essay sample

After today’s class you should be able to answer the following questions; †¢ †¢ †¢ The agreements expressly declared to be void The uncertain agreements The wagering agreements have not been discussed in the preceding chapter. Illegal agreements are also ‘unlawful agreements’ as they are expressly declared void by the Contract Act. It may be recalled that in the case of illegal agreements, transactions collateral to them are also tainted with illegality and hence void. Agreements in Restraint of Marriage Every individual enjoys the freedom to marry and so according to Section 26 of the Contract Act â€Å"every agreement in restraint of the marriage of any person, other than a minor, is void. † The restraint may be general or partial but the agreement is void, and therefore, an agreement agreeing not to marry at all, or a certain person, or a class of persons, or for a fixed period, is void. However, an agreement restraining the marriage of a minor is valid under the Section. It is interesting to note that a promise to marry a particular person does not imply any restraint of marriage, and is, therefore, a valid contract. Illustrations (a) Agrees with B for good consideration that he will not marry C. It is a void agreement. (b) A agrees with B that she will marry him only. It is a valid contract of marriage. 2. Agreements in Restraint of Trade The Constitution of India guarantees the freedom of trade and commerce to every citizen and therefore Section27 declares â€Å"every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void,† Thus no person is at liberty to deprive himself of the fruit of his labour, skill or talent, by any contracts that he enters into. It is to be noted that whether restraint is reasonable or not, if it is in the nature of restraint of trade, the agreement is void always, subject to certain exceptions provided for statutorily. Illustration. An agreement whereby one of the parties agrees to close his business in consideration of the promise by the other party to pay a certain sum of money, is void, being an agreement in restraint of trade, and the amount is not recoverable, if the other party fails to pay the promised sum of money ( Madhub Chander vs Raj Kumar) But agreements merely restraining freedom of action necessary for the carrying on of business are not void, for the law does not intend to take away the right of a trader to regulate his business according to his own discretion and choice. Illustration An agreement to sell all produce to a certain party, with a stipulation that the purchaser was bound to accept the whole quantity, was held valid because it aimed to promote business Introduction In today’s lecture we shall study about void agreements and their different classes You all must be aware by now that â€Å"An agreement not enforceable by law is said to be void† [Sec. 2(g)]. Thus a void agreement does not give rise to any legal consequences and is void ab-initio. In the eye of law such an agreement is no agreement at all from its very inception. We have already dealt with the following types of void agreements in the preceding chapters, and will not therefore discuss them here again: The preceding chapters, and will not therefore discuss them here again: 1. 2. 3. 4. Agreements by a minor or a person of unsound mind (Sec. 11). Agreements made under a bilateral mistake of fact material to the agreements(Sec. 20). Agreements of which the consideration or object is unlawful (Sec. 23). Agreements of which the consideration or object is unlawful in part and the illegal part cannot be separated from the legal part (Sec. 24). Agreements made without consideration (Sec. 25). 5. Expressly Declared Void Agreements The last essential of a valid contract as declared by Section 10 is that it must not be one which is ‘expressly declared’ to be void by the Act. Thus, there arises a question, as to what are ‘expressly declared’ void agreements? The following agreements have been ‘expressly declared’, to be void by the Indian Contract Act: 1. Agreements in restraint of marriage (Sec. 26). agreements in restraint of trade (Sec. 27). Agreements in restraint of legal proceedings (Sec. 28). Agreements the meaning of which is uncertain (Sec. 29) Agreements by way of wager (Sec. 30). Agreements contingent on impossible events (Sec. 36). Agreements to do impossible acts (Sec. 56). At the very outset, it may be borne in mind that the law declares these agreements void ab-initio and not illegal, and therefore transactions collateral to such agreements are not made void. In fact it is for this reason that these agreements 11. 555  © Copy Right: Rai University 55 and did not restrain it (Mackenzie vs Striramiah). But where in a similar agreement the purchaser was free to reject the goods (i. e. , was not bound to accept the whole quantity tendered) it was held that the agreement was void as being in restraint of trade (Sheikh Kalu vs Ram Saran). Exceptions An agreement in restraint of trade is valid in the following cases (i) Sale of goodwill. The seller of the ‘goodwill’ of a business can be restrained 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 the restraint is reasonable in point of time and space (Exception to Sec. 27). manufacturers e. g. , not to sell their goods below a certain price, to pool profits or output and to divide the same in an agreed proportion, does not amount to a restart of trade and IS perfectly valid (Fraser Co. v Bombay Ice Company5). Similarly, an agreement amongst the traders of a, particular locality with the object of keeping the trade in their own hands is not void merely because it hurts a rival in trade (Bhola Nath vs Lachmi Narain). But if an agreement attempts to create a monopoly, it would be void (Kameshwar Singh vs Yasin Khan). Agreements tending to create monopolies are now also governed by the provisions of the Monopolies and Restrictive Trade Practices Act, 1969, which forbids certain types of trade agreements. (iv) Negative stipulations in service agreements. An agreement of service by which a person binds himself during the term of the agreement, not to take service with anyone else, is not in restraint of lawful profession and is valid. Thus a chartered accountant employed in a company may be debarred from private practice or from serving elsewhere during the con-tinuance of service (Maganlal vs Ambica Mills Ltd. 8) But an agreement of service which seeks to restrict the freedom of occupation for some period, after the termination of service, is void. Thus, where S, who was an employ-ee of Brahmputra Tea Co. Assam, agreed not to employ himself or to† change himself in any similar business within 40 miles from Assam, for a period of five years from the date of the termination of his service, it was held that the agreement is in restraint of lawful profession and hence void (Brahamputra Tea Co. vs Scarth). 3. Agreements in Restraint of Legal Proceedings Section 28, as amended by the Indian Contract (Amendment) Act, 1996, declares the following three kinds of agreements void: (a) An agreement by which a party is restricted absolutely nom taking usual legal proceedings, in respect of any rights arising Item a contract. An agreement which limits the time within which one may enforce his contract rights, without regard to the time allowed by the Limitation Act. (c) An agreement ‘which provides for forfeiture of any rights arising from a contract, if suit is not brought within a specified period, without regard to the time allowed by the Limitation Act. Restriction on Legal proceedings. As stated above Section 28 renders every agreement in restraint of legal proceedings void. This is in furtherance of what we studied under the definition of a ‘contract’, namely, agreement plus ‘enforceability at law is a contract. Thus if an agreement inter-alia provides that no party shall ‘-go to a court of law, in case of breach, there is no contract and the agreement is void ab-initio. In this connection the following points must also be borne in mind: (a) The Section applies only to rights arising from a contract. It does not apply to cases1o of civil or criminal wrongs or torts. LEGAL ASPECTS OF BUSINESS Illustrations (a) A after selling the goodwill of his business to B promises not to carry on similar business â€Å"anywhere in the world. As the restraint is unreasonable the agreement is void. (b) C a seller of imitation jewellery in London sells his business to D and promises that for a period of two years he would not deal: (a) in imitation jewellery in England, (b) in real jewellery in England, and (c) in real or imitation jewellery in certain foreign countries. The first promise alone was held lawful. The other two promises, namely (b) and (c), were held void as the restraint was unreasonable in point of space and the nature of business (Goldsoll vs Goldma). (ii) Partners’ agreements. An agreement in restraint of trade among the partners or between any partner and the buyer of firm’s goodwill is valid if the restraint comes within any of the following cases: (a) An agreement among the partners that a partner shall not carry on any business other than that of the firm while he is a partner . (b) An agreement by a partner with his other partners that. on retiring from the partnership he will not carry on any business similar to that of the firm within a specified period or within specified local limits, provided the restrictions imposed are reasonable [Section 36(2) of the Partnership Act}.