Void Agreement

Written By – Rajarshi Tripathi (Amity Law School)

2(g)- Void agreement is an agreement which is not enforceable by Law – void – ab – inito.

  1. Agreement by or with person’s incompetent to contract [10, 11]
  1. Agreement entered into through a mutual mistake [20]
  1. Object or consideration – unlawful [23]
  1. Consideration or object partially, unlawful [24]
  1. Without consideration [25]
  1. Restraint of marriage [26]
  1. Restraint of trade [27]
  1. Legal proceeding [28]
  1. Consideration identified [29]
  1. Wagering agreement [30]
  1. Impossible agreement [56]
  1. An agreement to enter into an agreement in the future.

Agreement in Restraint of Marriage[26]

Every agreement in restraint of marriage of any person other than a minor, is void, any restraint of marriage whether total or partial is opposed to public policy.

(a) Ex. A promised to marry else except Mr. B, and in default pay her a sum of Rs.1,00,000. A married someone else and B sued A for recovery of the sum. Held, the contract was in restraint of marriage, and as such void.

(b) Ex. The consideration under a Sale Deed was for marriage expenses of a minor girl aged 12. Held the sale was a void transaction being opposed to public policy.

(c) Ex. Two co-widows – agreement – is one of them remarried – she shout forfeit her eight to her share in the deceased husband’s property was not void because no restraint was imposed upon either of the two widows from remarrying.

(d) Ex. Wife to divorce herself and to claim maintenance from the husband on his marrying a second wife was not void because no restraint was imposed upon husband from marrying a second wife.

Every agreement by which anyone is restrained from exercised a Lawful profession, trade or business of any kind is void .

  • Burden for Proof :-

Party supporting the contract:- must show that the restraint is reasonably necessary to protect public interest. Party challenging the contract:- restraints is injurious to the public.

Ex. : In Patna, 29 out of 30 manufacturers of combs agreed with R to supply combs only to him and not to anyone else. Under the agreements R was free to reject the goods if he found no market for them. Held, the agreement amounted to restraint of trade and void.

  • Exception to Sec. 27

Sale of goodwill: – Seller of goodwill of a business may agree with the buyer to restrain from carrying on business.

(a) Must relate to same business

(b) Restriction shall apply within specified Local limits.

(c) Restriction shall apply within a reasonable time period

(d) The specified local limits – depends on nature of business

  1. Restriction on existing partner [11(2)]

Not carry on business other than business of the firm till he is partner.

  1. Restriction on outgoing partner [36]

Local limits + specified period – local limit – nature of business

  1. Sec. 54: Upon or in anticipation of dissolution of Firm. Partners may agree that some or all of them will not carry on business similar to that of the Firm within specified periods or local limits.
  1. Sec. 55(2) : Partner may agree with due buyers of Goodwill, not to use the Firm name or carry on Firm’s business or solicit clients of the Firm.
  1. Sec. 55(3): Upon sale of Firm’s Goodwill, a partner may agree that he will not carry on any business similar to Firm’s within specified periods or local limits.

Exception under judicial interpretations

  1. Trade combination
  • Traders may from associations among them to regulate the business or to fix prices.
  • Such agreement like opening and closing of business venture, licensing of traders, supervision, and control of dealers, etc. are valid even if they are in restraint of trade
  • But a Combination that tends to create monopoly; or when two enter into an agreement to avoid competition, they are against public policy and hence void.
  1. Sale dealing agreement– Agreements to deal in the products of a single manufacturer or to sell the whole produce to a single dealer are valid if their terms are reasonable.
  1. Service agreement
  • Agreement: Employers may enter into agreements with employees – (i) not to engage in other work during the tenure of his employment; or (ii) not to engage in similar work after his termination.
  • During Employment: The first restraint is always valid, e.g. doctors may be paid non practicing allowances to avoid practicing when they are employed in a hospital.
  • After termination of service: The second restraint is valid only is it is to protect the trade interests or the employer. It may be imposed to prevent the outgoing employee from using trade secrets he had learnt during his tenure, to the detriment of his previous employer.
  • Valid Agreements : Requiring employees to serve the organization for a few years after training leaving; or execution of a bond requiring employees leaving the organization to pay compensation to the employer are valid.
  • Use of Personal Skills: The employer cannot prevent the employees from using his personal skills and knowledge to his benefit; e.g., an employer cannot restrain an employee to act in theatre plays or in perforating an art.

Agreement in Restraint of Legal Proceedings[28]

Agreement restricting enforcement of rights

  • An agreement by which any party is restricted absolutely from enforcing his legal rights under any contract is void.
  • Agreements Limiting period of limitation:- An agreement which limits the time within which an action way be brought is void.
  • A partial restrain is not void, eg.
  1. Ex. 1: A clause in a contract that any dispute arising between the parties shall be subject to jurisdiction of a court at a particular place only, is valid.
  1. Ex. 2: An agreement is not void merely because if provides that any dispute arising between two or prove person shall be referred to arbitration.
  • That has arisen.
  • Which may arise
  • Which has already arisen?
  1. Ex. 3: An agreement not to go in appeal to higher court against the judgment of a lower court does not amount to restart of legal proceeding.