Void Agreements : Meaning and Expressly Declared Void Agreements

Indian Contract Act, 1872 is a central law, and it validates the contracts or agreements between various parties. The act regulates and oversees all the business in case of any deal or an agreement. The Indian Contract Act, 1872 defines the term “Contract” under Section 2(h) as “An agreement enforceable by law”. Hence, a contract is anything that is an agreement and enforceable by the law of the land.

The Indian Contract Act, 1872 specifies certain essential elements which are required to be present in a contract, to form a valid contract. So, if those elements are not present, the contracts will not be legally binding on either of the parties and shall be declared either void or voidable. The parties to the contract should make sure that all the essential elements of a valid contract are present while engaging with any other party. In case a contract is void or voidable, restricted or no remedy will be available for the parties to the contract. Indian Contract Act has established certain agreements which are expressly declared as Void Agreements. These agreements are declared void by the law itself.

Geeky Takeaways:

• Indian Contract Act, 1872 is a central law, and it validates all the contracts or agreements between various parties.
• The Indian Contract Act, 1872 establishes several essential elements which are to be present in a contract. If such essential elements are absent, then such a contract or agreement is void.
• A void agreement is an agreement that is not enforceable by law.
• A void agreement confers no rights on parties to the contract or creates any obligation.
• The reasons why an agreement is declared void can be due to illegality, immorality, public policy, etc.

What are Void Agreements?

The Indian Contract Act, 1872 defines a Void agreement as “an agreement that is not enforceable by law.”  Void agreements do not have any legal binding on either party. A Void agreement possesses no legal effect and does not satisfy the essential elements of a contract, hence it is void. A Void agreement confers no rights on parties to the contract or creates any obligation.

Section 2(g) of the Indian Contract Act of 1872 establishes “that a void agreement is one that is not enforceable by law.” A void agreement does not create rights, obligations, or duties. It does not give rise to any legal consequences. Such agreements are considered void ab initio; i.e., void from the very beginning.

Expressly Declared Void Agreements

The Indian Contract Act, 1872 provides that some agreements shall be expressly declared void. The illegality, immorality, being against public policy, involving fraud or misrepresentation, and being impossible to perform are some of the reasons why an agreement is declared void. For example, An agreement is created between two parties to commit a crime.

There can be several instances where a contract might possess features of a void agreement; however, the act has specifically provided some agreements that shall be declared void:

1. Agreement in Restraint of Marriage

Section 26 of the Indian Contract Act, 1872 establishes that agreements that are made to restrain someone from marrying are not valid; i.e., void. However, this shall not apply in the case of a minor. The main idea behind the introduction of this section is that marrying someone is a matter of one’s own choice and is a basic right of every individual, and one should not be deprived by imposing any restraint. Herewith, any agreement that prohibits someone from marrying a person of his or her own choice will be declared void as it causes a restraint of marriage.

For example, if Sharad agrees not to marry Shraddha and Raunaq agrees to pay him ₹50,000, such a contract is expressly declared void.

2. Agreement in Restraint of Trade

Section 27 of the Indian Contract Act, 1872 establishes that any contract between two persons restrains a person from not practicing or commencing his trade or profession for some consideration. Any case of a person restraining someone from practicing a trade or profession for his benefit will be classified as a restraint of trade and shall be void.

However, certain conditions make a restraint on trade valid during a sale of goodwill, which are:

• The seller can only be restrained from carrying out a similar type of business.
• The restraint will apply only to certain local limits.
• The limits/restraint should be reasonable.

Exceptions for this section includes sale of goodwill, exceptions under the Indian Partnership Act, restraint by a contract of service, trade combinations, solus agreements, etc.

For example, Shruti, a practicing architect, sells her architectural firm to Kirti along with her goodwill. And Shruti agrees never to practice as an architect anywhere in the state for the next 10 years. This is not a valid agreement.

3. Agreements in Restraint of Legal Proceedings

Section 28 of the Indian Contract Act, 1872 establishes that any agreement that restrains one or both of the parties to the contract from proceeding to the courts is not valid or void. When there is a contract that prohibits a party to the contract from going to the courts or tribunals, or imposes any limit in time to approach a court is void and such agreements belong to restraint of legal proceedings. However, the act also provides for exceptions like, in case the agreement states that in case of any dispute between parties, such dispute will be referred to the arbitration, and if any amount is awarded in such arbitration, that shall be considered as final and it will be a valid contract.

Furthermore, if the parties to the contract agree that in case of any dispute between the two, either in the present or in the future will be referred to the arbitration, then such an agreement will be valid. But such a contract is required to be made in writing.

For example, where the bylaws of a stock exchange containing restrictions on members from initiating arbitration and requiring them to initiate within a specific timeline were held to be void. (A, Chandrasekaran v. Yoha Securities Limited).

4. Agreement whose Meaning is Uncertain

Section 29 of the Indian Contract Act, 1872 establishes that when an agreement whose meaning is vague and uncertain, such an agreement cannot be a valid agreement, and it will be a void agreement. Where the essential meaning of the contract is not clear and assured, such a contract cannot be legally binding on either party as the terms and conditions of the contract are complex and indefinite. However, in a case where such uncertainty can be removed, the contract becomes valid and binding.

For example, Aman contracts with Sulekha, saying that if she sells her car to Jyoti, he will pay her some amount. Here, the amount is not specific, and consideration is not clear. Hence, the agreement is void.

5. Agreement by Meaning of Wager

Section 30 of the Indian Contract Act, 1872 establishes that an agreement to wager will be considered a void agreement. The word ‘wager’ means a bet. Such agreements are based on the happening or non-happening of any event that is uncertain. Wagering agreements are similar to ordinary betting agreements. In a wager, each side would have a chance to either win or lose money, depending on the outcome of an uncertain event. The essentials of a wagering agreement are as below:

• A promise to pay money.
• A promise is conditional and based on the happening or non-happening of a certain event.
• The event on which a promise is based must be uncertain.
• Neither party to the contract can have any control over it.
• There must be a common intention to bet at the time of agreeing.
• Parties to the contract should have any other interest other than the stake in the bet.

However, the wagering agreement have certain exceptions, such as, chit funds, commercial transactions; i.e., trading on the stock market, athletic competitions and competitions involving skill sets, insurance contracts, etc.

For example, Sneha and Anu contract with each other that if team Happy Haryana beats Delightful Delhi, Sneha will pay ₹2000 to Anu, and if Delightful Delhi beats Happy Haryana then Anu will pay ₹1500 to Sneha. Such a contract is void.

6. Agreements Contingent on an Impossible Event

Section 36 of the Indian Contract Act, 1872 establishes that if a contingent contract is based on the happening or non-happening of an event that is impossible to perform, then such a contract will be void. The agreement will remain void regardless of whether the parties to the contract are aware of such an impossibility or not.

For example, Google contracts with Meta and says that Google will pay ₹ 50,000 if Meta can make a quadrilateral whose total sum of angles is 500°. This is a void agreement.

7. Agreement to do Impossible Acts

Section 56 of the Indian Contract Act, 1872 establishes that any agreement made to do impossible acts is void. Furthermore, the contract act also establishes that any agreement to do an act that becomes impossible or unlawful after the contract was made, is also considered as void agreement.

For example, Bolt contracts with Neeraj that if he runs at a speed of 250kmph, then such a contract is void as it is impossible to perform.

Conclusion

A void contract is an agreement which is not enforceable by law. Under a void contract, the essential elements of a valid contract are absent. An agreement might be declared void due to Illegality, immorality, being against public policy, involving fraud or misrepresentation, and being impossible to perform. An agreement made to prohibit someone from commencing a trade, practicing a profession, or engaging in any business is expressly declared void. The reason the act has specified such agreements as void is because these agreements violate the person’s constitutional rights by making such arrangements. Parties to a contract must go through the terms and understand the terms and consequences well so that they can protect themselves from probable damage as remedies in such arrangements are either restricted or not available.

Frequently Asked Questions (FAQs)

1. What is a Void Agreement?

Answer:

Section 2(g) of the Indian Contract Act of 1872 establishes “that a void agreement is one that is not enforceable by law. A void agreement does not create rights, obligations or duties. It does not give rise to any legal consequences. Such agreements are considered void ab initio; i.e., void from the very beginning.”.

2. Why an agreement is declared void?

Answer:

An agreement might be declared void as essential elements of a valid agreement are absent. Elements such as illegality, immorality, being against public policy, involving fraud or misrepresentation, and being impossible to perform are some of the major reasons as to why an agreement is declared void.

3. What are the conditions that make Restraint of Trade valid in case of sale of goodwill?

Answer:

There are certain conditions that make a Restraint of Trade valid during a sale of goodwill, which are:

• The seller can only be restrained from carrying out a similar type of business.
• The restraint will be applicable only to certain local limits.
• The limits/restraint should be reasonable.

4. What are the exceptions of a Wagering Agreement?

Answer:

The wagering agreement have certain exceptions:

• Chit fund.
• Commercial transactions; i.e., trading on the stock market.
• Athletic competitions and competitions involving skill sets.
• Insurance contracts.

5. What is Agreement in Restraint of Marriage?

Answer:

Any agreement that prohibits someone from marrying a person of his or her own choice will be declared void as it causes a Restraint of Marriage. Section 26 of the Indian Contract Act, 1872 establishes that agreements that are made in order to restrain someone from marrying are not valid; i.e., void. However, this shall not apply in the case of a minor.