VOID AGREEMENTS - A GUIDE FOR THE LAYPERSONS



I invite you to imagine a situation: one in which a man makes a promise to a woman that he shall not marry anyone other than her. He promises her that if he does so, that if he betrays her trust, he shall pay her a thousand pounds within three months of his marriage to such other woman. One often wonders in situations like this: which side does the scale of justice weigh? Can the promisor be dragged in a Court of Law and be asked to pay up the amount as promised?


And how many such other situations exist in which a word is given but it does not seem “just” to enforce it: is it reasonable to say that if one promises to not enter a particular trade or if one agrees to never exercise their legal rights against another in a court of law, one should be held bound by their words?


On the other hand, it is also important for the promisee to know whether a contract is enforceable or unenforceable: after all no one wants to end up signing an agreement only to later come to know that the promise made to them holds no value in the eyes of law.


This is where the contract law comes into play: one may enter into an agreement with another to do or to abstain from doing anything and everything under the sun as long as the principles embodied in the Indian Contract Act, 1872 are followed. The Indian law on contract provides certain prerequisites for an agreement to be enforceable and also expressly declares certain kinds of agreements void.


To start off, there are some basic requirements that an agreement must fulfil to be enforceable:-


1. The agreement cannot be without consideration and both the object and the consideration of an agreement must be lawful.

The term “lawful”, according to section 23 of the Act implies that the consideration or object must not be forbidden by law, it must not be such that it defeats the provision of any law, it must not be fraudulent and finally, it must not imply injury to property or person of another.

It is a handful but can be best understood with a concrete example: In a 1952 case, the Madras High Court held that where the object for which the guardian borrowed money under an agreement was to celebrate the marriage of a child, the agreement would be hit by the provisions of the Child Marriage Restraint Act, 1929 as the marriage of a child is an offence under the said act. (Here the consideration for the contract was the loan and the object for which the loan was taken was the marriage of a minor which was forbidden by law. Thus, the object was unlawful and agreement void).


2. An agreement must also not be uncertain or incapable of being made certain. If it is so, it would be void under section 29.


In Guthing v Lynn [1], the court had to decide the validity of an agreement under the terms of which a horse was bought at a certain price coupled with a promise to give 5 pounds more if the horse was proven lucky. The court held that there was no mechanism to determine what luck, good or bad, the horse had brought to the buyer and thus the agreement was uncertain in its meaning and therefore void.


3. There can also be no agreement to do an impossible act, such an agreement will be void according to Section 56.

A perfect illustration of this is an agreement between A and B to discover treasure by magic. Such an agreement is void.


The aforementioned are all the general principles according to which an agreement must be made. However, there are some specific types of agreements which have been expressly declared void by the Contract Act of 1872:-


1. AGREEMENTS IN RESTRAINT OF MARRIAGE


An agreement in restraint of marriage of any person is void according to section 26 of the said act.

It is immaterial whether the restriction is partial or whole: one may promise to not marry a particular person or a particular class of persons, one may promise to remain unmarried for a certain period of their life, one may even promise to remain a bachelor or a bachelorette for the entirety of his/her life, the bottom line in all these cases is that none of these promises can be enforced against the promisor. However, where there is no restriction to marry anyone but rather a promise is taken to marry a particular person and on failure to do so, to pay a penalty, such a contract is not considered in restraint of marriage and an action for damages can validly lie for its breach.

It is interesting to note that even the framing of language of a contract can play an important role: where the agreement was not in the form of promise to ‘marry a particular lady’ but to ‘not marry any other lady than the promisee’, the agreement was held as void in a 1768 English case titled Lowe v. Peers [2] (the facts of which have been reproduced at the beginning of this article).


It is to be noted that an agreement in restraint of marriage of a minor is an exception; such an agreement is not void in the eyes of law for a very plausible explanation: marriage of a minor child is not in the interest of society and its restraint is.


2. AGREEMENTS IN RESTRAINT OF TRADE When it comes to unjustified agreements, we can all reach a consensus that no person should be prevented from rightfully exercising a lawful trade, profession or business merely because they have entered into an agreement to not do so. Our constitution guarantees us a right to earn our livelihood and it cannot be taken away by an agreement: this is the principle which is embodied in Section 27 of the Contract Act.


However, it is sensible that in certain situations an agreement in restraint of trade etc. be considered valid than void, for example, where a goodwill of a business is sold, it is reasonable to ask the seller to refrain from carrying on a similar business in the vicinity of the buyer’s business. If this restriction on trade is not considered valid, it will make the entire endeavour of buying and selling of goodwill meaningless (for if the seller continues a similar business even after selling his goodwill, his customer base would still flock to him and the buyer would be left with the short end of the stick).


Many exceptions exist even under the Partnership laws to ensure that the business of a firm is not compromised by its partners and therefore it is considered valid and lawful for the partners to restrain each other by an agreement to not carry on any business other than the firm’s. It will again be valid for the partners to restrain an outgoing partner from carrying on a similar business within a particular time frame and vicinity. Partners may even choose to restrain each other from carrying on a similar business as that of the firm in anticipation of its dissolution.


Similarly, it is reasonable that an employee be restrained from working with an employer’s competitors to ensure that the employee does not jeopardize the business of the employer by giving away trade secrets or customer data base. However, such a restriction can continue only as long the employment continues.

3. AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS The third one of our unjustified agreements is an agreement in restraint of legal proceedings. It is against public policy that the jurisdiction of the courts be ousted completely and it is unfair that a party be deprived of its legal rights-which can be done in two ways:-


1) By restraining a party from approaching the court of law Such a restriction is void. However, where the restraint is partial in the sense that the parties agree to approach one court over the other where both the courts have jurisdiction, such an agreement will be absolutely valid. It must be noted here that agreements which restrains a right to appeal do not come within the purview of Section 28.


2) By limiting the time frame in which the court can be approached. The time period that is guaranteed to a person under the Limitation Law to approach the courts cannot be forcefully shortened by an agreement.

It must be noted that the parties can validly agree to resolve their future disputes through arbitration rather than a court of law and parties can also enter into an agreement to refer the disputes that have already arisen between them to arbitration and such an agreement would be valid: it is an exception to the rule laid down in section 28 of the Indian Contract Act.


4. WAGERING AGREEMENTS


Last of all, we have wagering agreements which are also expressly prohibited by section 30 of the Contract Act. The word “wager” refers to “the act of risking a sum of money or valued item against someone else's on the basis of the outcome of an unpredictable event.” In Carlill v Carbolic Smoke Ball Co.[3], Hawkins J explained the meaning of wager by saying that neither of the contracting parties have any interest in the contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either parties. Further, he explained that it is also essential that either party may win or lose depending on the uncertain event. However, if either parties may win but cannot lose, it is not a wagering agreement.


The reason for making wagering agreements void is that it is against public policy to encourage activities like gambling. However certain exceptions have been carved out, the first of which is horse racing bets: Section 30 explains that it does not render unlawful any subscription, contribution or an agreement to so make a contribution etc. towards any plate, prize or sum of money, of the value or amount of five hundred rupees or upwards, to be awarded to the winner(s) of any horse race. In Dr. K.R. Lakshmanan v. State of Tamil Nadu[4], the Hon’ble Supreme Court has held that horse-racing is a game where the winning depends substantially and preponderantly on skill. Thus it is not a mere game of chance, it requires a lot of skills and one has control over the results. To conclude, horse racing bets do not meet an essential requirement to be a wagering agreement: the outcome being substantially based on skill, cannot be said to be totally based on an uncertain/unpredictable event. Similarly, crossword competitions have been distinguished from lottery for the reason that these require a skilful competitor and are thus not wagers.


Now that we know what it takes to make an agreement enforceable under law, we can confidently understand our rights as parties to an agreement. We can very well understand that there are certain kinds of agreements that have been expressly declared as void under law because it is in the interest of justice and public policy that these agreements be void and by knowing the take of law and how it operates on our day to day lives, we can avoid a lot of unnecessary hassle: in this particular case, the hassle of entering into agreements that hold no value legally. The more aware we are, the better off.


REFERENCES 1. Avtar Singh, Contract and Specific Relief (Eastern Book Company, Lucknow, 11th edn., 2013)

2. Dr. Ashok K. Jain, I Ascent’s Law Guide For Judicial Service Examinations (Ascent Publications, Delhi, 2nd edn., 2008) 3. Akanksha Rathore, Wagering Agreements-The Position of Law, Legal Services India, available at: http://www.legalservicesindia.com/article/283/Wagering-Agreements.html (last visited on 10-01-2021)

4. Anubhav Pandey, Why is betting on horse racing legal in India, Ipleaders (June 14, 2017), available at: https://blog.ipleaders.in/betting-horse-racing-legal-india/ (last visited on 10-01-2021)


CASES CITED [1] Guthing v Lynn (1831) 2 B7 Ad 232

[2] Lowe v. Peers (1768) 2 Burr 2225

[3] Carlill v Carbolic Smoke Ball Co.[ [1892] EWCA Civ 1

[4] Dr. K.R. Lakshmanan v. State of Tamil Nadu 1996 AIR 1153, 1996 SCC (2) 226





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