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VOID AGREEMENTS
-SHIVANI SHARMA
-ASSISTANT PROFESOR
-SARDAR PATEL SUBHARTI INSTITUTE OF LAW
Void Agreements
• The Indian Contract Act 1872 under Section 2 (g) defines a void agreement as
“an agreement that is not enforceable by law”
• A void agreement definition would be an agreement or contract with no legal value. Legally, a
void agreement means the contract or agreement is no longer enforceable.
Void
Never valid Valid once
Agreements Never Valid
• An agreement that was void from the beginning is said to be void ab-initio.
• In order to be valid, the agreement must contain all of the elements listed in the Indian Contract
Act of 1872, Section 10.
• Ab-initio agreements violated the Indian Contract Act from the beginning and are not valid.
Examples of an agreement that would never be valid include those that:
1. Cannot be executed, such as a street vendor selling the Brooklyn Bridge to a tourist
2. Were made without consideration
3. Having unlawful consideration or object
4. Include a party that is a minor, intoxicated, or legally insane at the time of signing
5. Uncertain Agreements
6. Expressly given under the Act
• Essentially these agreements have no legal effects and in the eyes of the law they never existed.
Agreements valid once
• A void contract is a contract or agreement that ceases to have a legal effect.
• Unlike an ab-initio, these contracts did at one point contain the elements listed in the Indian
Contract Act, and therefore at least initially are considered valid legal agreements binding to
both parties. A few ways a contract could become legally void are:
1. The contract becomes impossible to fulfill due to external circumstances
2. Laws change since the initial agreement, and the agreement now requires breaking the law
3. Fulfilling the contract will result in something unlawful
4. The contract was contingent on circumstances that cannot come to pass
5. One party failed to disclose key information or provided inaccurate information
• Technically speaking, a fulfilled contract is also a void contract, as the parties involved are no
longer bound by the contract and therefore it has no legal effect.
VOID-AB-INITIO
AGREEMENTS
1. Agreement in Restraint of Marriage
• Section – 26 - Any agreement that restrains the marriage of a major
(adult) is a void agreement.
• This does not apply to minors. But if an adult agrees for some
consideration not to marry, such an agreement is expressly a void
agreement according to the contract act.
• So A agrees that if B pays him 50,000/- he will not marry such an
agreement is a void agreement.
• Rao Rani v Gulab Rano – Penalty upon remarriage my not be
construed as Restrained
2. Agreement in Restraint of Trade
• Section – 27 - An agreement by which any person is restrained from plying a trade or practising
a legal profession or exercising a business of any kind is an expressly void agreement. Such an
agreement violates the constitutional rights of a person.
• However, there are a few exceptions to this rule:
1. A Sale of Goodwill - If a person sells his business along with the goodwill then the buyer can
ask the seller to refrain from practising the same business at the local limits.
Nordenfelt v Maxim Nordenfelt Guns & Ammunitions Co. Ltd
2. Partnership Agreements - Similarly, if an outgoing partner can enter into such a restraint of a
trade agreement with the partnership firm. Also, a contract between partners not to carry out any
competing business during the continuance of a partnership is also a valid contract.
3. Contract of Service
• One point to keep in mind regarding the above agreements is that
the terms of such an agreement have to be reasonable. Such
reasonable terms are not defined under the act but are to be
judged according to each unique situation and circumstance.
• Let us take for example the case of physician A who employs B as
his assistant for three years. For this duration of three years, B
agrees not to practice medicine anywhere else. This is a valid
agreement even though it is in restraint of trade.
• But say A a lawyer sells his legal practice to B along with the
goodwill. And A agrees never to practice as a lawyer anywhere in
the state for the next 20 years. This is not a valid agreement since
the terms are completely unreasonable
3. Agreement of Restraint of Legal
Proceedings
• Section – 28- An agreement that prevents one party from enforcing his legal
rights under a contract through the legal process (of courts, arbitration, etc)
then such an agreement is expressly void agreement.
• However, there are exceptions like, if the agreement states that any dispute
between parties will be referred to arbitration and the amount awarded in
such arbitration will be final will be a valid contract.
• Also if the parties agree that any dispute between them in the present or the
future will be referred to arbitration, then such an agreement is also valid. But
such a contract has to be in writing.
4. Agreements Void Through Uncertainty
• Another way agreements can be void is through uncertainty.
• If an agreement is uncertain in meaning, and cannot be clarified through legal or
business proceedings, the agreement is void. (May & Butcher v The King)
• Part of what makes a legally binding contract is the obligation being clear and
therefore able to be fulfilled. If the language used cannot be interpreted by the parties
involved or a third party, the contract has no legal effect.
• An example of a void agreement through uncertainty is one that is vaguely worded: "X
agrees to purchase fruit from Y." If there is no way to determine which type of fruit
was agreed upon or intended, then the agreement is void. However, if party Y in the
above agreement is a grapefruit farmer, then there is a clear indication of what type of
fruit was intended and X would still be liable to make the purchase.
5. Wagering Agreements
• According to Section 30 of the Indian Contract Act, an agreement to
wager is a void agreement.
• The basis of a wager is that the agreement depends on the happening
or non-happening of an uncertain event. Here each side would either
win or lose money depending on the outcome of such an uncertain
event.
• The essentials of a wagering agreement are as follows. If all elements
are met then the agreement will be void:
1. Must contain a promise to pay money or money’s worth
2. Is conditional on the happening or non-happening of an uncertain
event ( Carlil v Carbolic Smoke Ball Co.)
3. The event must be uncertain. Neither party can have any control over
it
4. Must be the common intention to bet at the time of making the
agreement
5. Parties should have no other interest other than the stake of the bet
• The following agreements are not considered wagering agreements,
1. Chit Fund
2. Commercial Transactions, i.e Transactions of the Share MArket
3. Athletic Competition and Competitions involving Skills
4. Insurance Contracts
VOID AGREEMENTS
IMPOSSIBLE AGREEMENTS
• Section 56 – “An agreement to do an act impossible in itself is void.
Contract to do an act which, after the contract is made, becomes
impossible, or, by reason of some event which the promisor could not
prevent, unlawful, becomes void when the act becomes impossible or
unlawful.”
Illustration:
• A agrees with B to discover treasure by magic. The agreement is void.
• A and B contract to marry each other. Before the time fixed for the
marriage, A goes mad. The contract becomes void.
DOCTRINE OF FRUSTRATION
• Contracts entered into between parties impose contractual obligations
on both the parties for the performance of such contract.
• However, many times unforeseen or unforeseeable supervening events
occur which make the performance of the contracts impossible due to
no fault of either party.
• In such cases, the contract is said to be frustrated.
• Frustration of contract results in involuntary extinction of the
contractual obligations of both parties and consequently, the parties
are relieved from their rights and liabilities.
• The doctrine of frustration was initially used by the English Courts in 1863 in the case
of Taylor vs. Cardwell.
• In this case, an opera house, which was rented for holding concerts, was destroyed by
fire. The Court held that the contract was frustrated because the very thing on which
the contract depended on ceased to exist.
• The doctrine of frustration was named in England in the case of Krell vs. Henry in
1903.
• Wherein the Plaintiff Krell leased his apartment in London to the Defendant C.S Henry
to be used for viewing a royal procession.
• However, the procession got cancelled and the Defendant refused to pay the Plaintiff
the balance of the rent.
• The Court held that the procession was the foundation of the contract, and that the
Defendant was excused from performance because his purpose for entering into the
contract was frustrated.
DOCTRINE OF FRUSTRATION IN
ICA,1872
• The Indian Contract Act, 1872, does not specifically define frustration of contract.
• However, the doctrine is envisaged in Section 56 of the Act, which states that an
agreement to do an act impossible in itself is void.
• Further, a contract to do an act which, becomes impossible, or, by reason of some
event which the promisor could not prevent, unlawful, becomes void when the act
becomes impossible or unlawful.
• Hence, frustration is the happening of an act outside the contract and such act makes
the completion of a contract impossible.
• After the parties have concluded a contract, events beyond their control may occur
which frustrate the purpose of their agreement, or render it very difficult or
impossible, or as even illegal, to perform.
Frustration of contract can be established upon the
fulfillment of the following conditions;
•Existence of a valid contract between parties
•The contract is yet to be performed
•The performance of the contract becomes
impossible or unlawful
•The impossibility to perform is caused by an event
which is beyond the control of both the parties.
FACTORS OF FRUSTRATION
1. Impossibility of performance:
• Doctrine of Frustration of contract arises from the impossibility to do an act.
• But the principle is not confined to physical impossibilities. It was held in the case
of Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr, that 'impossible' has
not been used in Section 56 of the Act in the sense of physical or literal impossibility.
• The performance of an act may not be literally impossible but it may be impracticable
and useless, and if an untoward event or change of circumstances totally upsets the
very foundation upon which the parties rested their bargain, it can very well be said
that the promisor finds it impossible to do the act which he promised to do.
Therefore, if the object of the contract is lost, the contract is frustrated.
2. Change of Circumstances:
• Courts declare frustration of a contract on the ground of subsequent impossibility when it finds
that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of
an unexpected event or change of circumstances which was beyond what was contemplated by
the parties at the time when they entered into the agreement. The changed circumstances make
the performance of the contract impossible and the parties are absolved from the further
performance of it as they did not promise to perform an impossibility.
3. Loss of object:
• The impossibility contemplated by Section 56 of the Act is not confined to something which is
not humanly possible, as held in the case of Sushila Devi vs. Hari Singh. The Court stated that
if the performance of a contract becomes impracticable or useless having regard to the object
and purpose of the parties, then it must be held that the performance of the contract became
impossible. But the supervening events should take away the very basis of the contract and it
should be of such a character that it strikes at the root of the contract. As it was a case of lease
of property, which after the unfortunate partition of India and Pakistan, the property in dispute
which was situated in India, went onto the side of Pakistan, hence, making the terms of the
agreement impossible.
• Frustration of a contract makes the contract void, and discharges the
parties of the contractual obligations. However, Section 65 of the Act
states that when an agreement has become void, the person who has
received any advantage under such agreement is 'bound' to restore it
or to make compensation for it, from whom he received it. The issue
arises whether this section also applies to contracts rendered void by
frustration. Frustration of a contract occurs without the fault or control
of either party, and therefore, a party should not be made to
compensate in such event. However, not providing adequate
compensation may also cause loss to the other party. Therefore, it is
hoped that the Indian judiciary sheds some light into such issues and
provide a suitable remedy for cases of frustration of contracts.

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Void agreements

  • 1. VOID AGREEMENTS -SHIVANI SHARMA -ASSISTANT PROFESOR -SARDAR PATEL SUBHARTI INSTITUTE OF LAW
  • 2. Void Agreements • The Indian Contract Act 1872 under Section 2 (g) defines a void agreement as “an agreement that is not enforceable by law” • A void agreement definition would be an agreement or contract with no legal value. Legally, a void agreement means the contract or agreement is no longer enforceable. Void Never valid Valid once
  • 3. Agreements Never Valid • An agreement that was void from the beginning is said to be void ab-initio. • In order to be valid, the agreement must contain all of the elements listed in the Indian Contract Act of 1872, Section 10. • Ab-initio agreements violated the Indian Contract Act from the beginning and are not valid. Examples of an agreement that would never be valid include those that: 1. Cannot be executed, such as a street vendor selling the Brooklyn Bridge to a tourist 2. Were made without consideration 3. Having unlawful consideration or object 4. Include a party that is a minor, intoxicated, or legally insane at the time of signing 5. Uncertain Agreements 6. Expressly given under the Act • Essentially these agreements have no legal effects and in the eyes of the law they never existed.
  • 4. Agreements valid once • A void contract is a contract or agreement that ceases to have a legal effect. • Unlike an ab-initio, these contracts did at one point contain the elements listed in the Indian Contract Act, and therefore at least initially are considered valid legal agreements binding to both parties. A few ways a contract could become legally void are: 1. The contract becomes impossible to fulfill due to external circumstances 2. Laws change since the initial agreement, and the agreement now requires breaking the law 3. Fulfilling the contract will result in something unlawful 4. The contract was contingent on circumstances that cannot come to pass 5. One party failed to disclose key information or provided inaccurate information • Technically speaking, a fulfilled contract is also a void contract, as the parties involved are no longer bound by the contract and therefore it has no legal effect.
  • 6. 1. Agreement in Restraint of Marriage • Section – 26 - Any agreement that restrains the marriage of a major (adult) is a void agreement. • This does not apply to minors. But if an adult agrees for some consideration not to marry, such an agreement is expressly a void agreement according to the contract act. • So A agrees that if B pays him 50,000/- he will not marry such an agreement is a void agreement. • Rao Rani v Gulab Rano – Penalty upon remarriage my not be construed as Restrained
  • 7. 2. Agreement in Restraint of Trade • Section – 27 - An agreement by which any person is restrained from plying a trade or practising a legal profession or exercising a business of any kind is an expressly void agreement. Such an agreement violates the constitutional rights of a person. • However, there are a few exceptions to this rule: 1. A Sale of Goodwill - If a person sells his business along with the goodwill then the buyer can ask the seller to refrain from practising the same business at the local limits. Nordenfelt v Maxim Nordenfelt Guns & Ammunitions Co. Ltd 2. Partnership Agreements - Similarly, if an outgoing partner can enter into such a restraint of a trade agreement with the partnership firm. Also, a contract between partners not to carry out any competing business during the continuance of a partnership is also a valid contract. 3. Contract of Service
  • 8. • One point to keep in mind regarding the above agreements is that the terms of such an agreement have to be reasonable. Such reasonable terms are not defined under the act but are to be judged according to each unique situation and circumstance. • Let us take for example the case of physician A who employs B as his assistant for three years. For this duration of three years, B agrees not to practice medicine anywhere else. This is a valid agreement even though it is in restraint of trade. • But say A a lawyer sells his legal practice to B along with the goodwill. And A agrees never to practice as a lawyer anywhere in the state for the next 20 years. This is not a valid agreement since the terms are completely unreasonable
  • 9. 3. Agreement of Restraint of Legal Proceedings • Section – 28- An agreement that prevents one party from enforcing his legal rights under a contract through the legal process (of courts, arbitration, etc) then such an agreement is expressly void agreement. • However, there are exceptions like, if the agreement states that any dispute between parties will be referred to arbitration and the amount awarded in such arbitration will be final will be a valid contract. • Also if the parties agree that any dispute between them in the present or the future will be referred to arbitration, then such an agreement is also valid. But such a contract has to be in writing.
  • 10. 4. Agreements Void Through Uncertainty • Another way agreements can be void is through uncertainty. • If an agreement is uncertain in meaning, and cannot be clarified through legal or business proceedings, the agreement is void. (May & Butcher v The King) • Part of what makes a legally binding contract is the obligation being clear and therefore able to be fulfilled. If the language used cannot be interpreted by the parties involved or a third party, the contract has no legal effect. • An example of a void agreement through uncertainty is one that is vaguely worded: "X agrees to purchase fruit from Y." If there is no way to determine which type of fruit was agreed upon or intended, then the agreement is void. However, if party Y in the above agreement is a grapefruit farmer, then there is a clear indication of what type of fruit was intended and X would still be liable to make the purchase.
  • 11. 5. Wagering Agreements • According to Section 30 of the Indian Contract Act, an agreement to wager is a void agreement. • The basis of a wager is that the agreement depends on the happening or non-happening of an uncertain event. Here each side would either win or lose money depending on the outcome of such an uncertain event. • The essentials of a wagering agreement are as follows. If all elements are met then the agreement will be void: 1. Must contain a promise to pay money or money’s worth 2. Is conditional on the happening or non-happening of an uncertain event ( Carlil v Carbolic Smoke Ball Co.)
  • 12. 3. The event must be uncertain. Neither party can have any control over it 4. Must be the common intention to bet at the time of making the agreement 5. Parties should have no other interest other than the stake of the bet • The following agreements are not considered wagering agreements, 1. Chit Fund 2. Commercial Transactions, i.e Transactions of the Share MArket 3. Athletic Competition and Competitions involving Skills 4. Insurance Contracts
  • 14. IMPOSSIBLE AGREEMENTS • Section 56 – “An agreement to do an act impossible in itself is void. Contract to do an act which, after the contract is made, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.” Illustration: • A agrees with B to discover treasure by magic. The agreement is void. • A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.
  • 15. DOCTRINE OF FRUSTRATION • Contracts entered into between parties impose contractual obligations on both the parties for the performance of such contract. • However, many times unforeseen or unforeseeable supervening events occur which make the performance of the contracts impossible due to no fault of either party. • In such cases, the contract is said to be frustrated. • Frustration of contract results in involuntary extinction of the contractual obligations of both parties and consequently, the parties are relieved from their rights and liabilities.
  • 16. • The doctrine of frustration was initially used by the English Courts in 1863 in the case of Taylor vs. Cardwell. • In this case, an opera house, which was rented for holding concerts, was destroyed by fire. The Court held that the contract was frustrated because the very thing on which the contract depended on ceased to exist. • The doctrine of frustration was named in England in the case of Krell vs. Henry in 1903. • Wherein the Plaintiff Krell leased his apartment in London to the Defendant C.S Henry to be used for viewing a royal procession. • However, the procession got cancelled and the Defendant refused to pay the Plaintiff the balance of the rent. • The Court held that the procession was the foundation of the contract, and that the Defendant was excused from performance because his purpose for entering into the contract was frustrated.
  • 17. DOCTRINE OF FRUSTRATION IN ICA,1872 • The Indian Contract Act, 1872, does not specifically define frustration of contract. • However, the doctrine is envisaged in Section 56 of the Act, which states that an agreement to do an act impossible in itself is void. • Further, a contract to do an act which, becomes impossible, or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. • Hence, frustration is the happening of an act outside the contract and such act makes the completion of a contract impossible. • After the parties have concluded a contract, events beyond their control may occur which frustrate the purpose of their agreement, or render it very difficult or impossible, or as even illegal, to perform.
  • 18. Frustration of contract can be established upon the fulfillment of the following conditions; •Existence of a valid contract between parties •The contract is yet to be performed •The performance of the contract becomes impossible or unlawful •The impossibility to perform is caused by an event which is beyond the control of both the parties.
  • 19. FACTORS OF FRUSTRATION 1. Impossibility of performance: • Doctrine of Frustration of contract arises from the impossibility to do an act. • But the principle is not confined to physical impossibilities. It was held in the case of Satyabrata Ghose vs. Mugneeram Bangurn & Co & Anr, that 'impossible' has not been used in Section 56 of the Act in the sense of physical or literal impossibility. • The performance of an act may not be literally impossible but it may be impracticable and useless, and if an untoward event or change of circumstances totally upsets the very foundation upon which the parties rested their bargain, it can very well be said that the promisor finds it impossible to do the act which he promised to do. Therefore, if the object of the contract is lost, the contract is frustrated.
  • 20. 2. Change of Circumstances: • Courts declare frustration of a contract on the ground of subsequent impossibility when it finds that the whole purpose or basis of a contract was frustrated by the intrusion or occurrence of an unexpected event or change of circumstances which was beyond what was contemplated by the parties at the time when they entered into the agreement. The changed circumstances make the performance of the contract impossible and the parties are absolved from the further performance of it as they did not promise to perform an impossibility. 3. Loss of object: • The impossibility contemplated by Section 56 of the Act is not confined to something which is not humanly possible, as held in the case of Sushila Devi vs. Hari Singh. The Court stated that if the performance of a contract becomes impracticable or useless having regard to the object and purpose of the parties, then it must be held that the performance of the contract became impossible. But the supervening events should take away the very basis of the contract and it should be of such a character that it strikes at the root of the contract. As it was a case of lease of property, which after the unfortunate partition of India and Pakistan, the property in dispute which was situated in India, went onto the side of Pakistan, hence, making the terms of the agreement impossible.
  • 21. • Frustration of a contract makes the contract void, and discharges the parties of the contractual obligations. However, Section 65 of the Act states that when an agreement has become void, the person who has received any advantage under such agreement is 'bound' to restore it or to make compensation for it, from whom he received it. The issue arises whether this section also applies to contracts rendered void by frustration. Frustration of a contract occurs without the fault or control of either party, and therefore, a party should not be made to compensate in such event. However, not providing adequate compensation may also cause loss to the other party. Therefore, it is hoped that the Indian judiciary sheds some light into such issues and provide a suitable remedy for cases of frustration of contracts.

Editor's Notes

  1. Satyabrata (plaintiff), assignee of Bejoy Krishna Roy, sued defendant alongwith Bejoy as party defendant, for wrongfully repudiating the contract of developing the lands which were sold to the plaintiff, and asked for specific performance of the same. Defendant took the defence of frustration as the lands which needed to be developed were temporarily requisitioned by the Govt. under the defence rules such that for unspecified period of time, any development work if executed on the land would be illegal. The contract was made at a time when war conditions were prevailing and any such requisition was imputed to be in contemplation of the parties while forming contract. Further, no time was specified in the contract.