VOID AGREEMENTS

Charu Srivastava
Assistant Professor
CoLS, UPES
Section 2(g) of the Contract Act.
Apart from those void agreements the Acts
declares the following types of agreement as
void:
1. Agreement in restraint of marriage (S. 26)
2. Agreement in restraint of trade (S. 27)
3. Agreement in restraint of legal proceedings
(S. 28)
4. Agreement void for uncertainty (S. 29)
5. Agreement by way of wager (S. 30)
Agreement to do impossible act (S. 56)
Agreement in restraint of marriage (S. 26)

A contract is in restraint of marriage if its

object or effect is to restrain or prevent a party
from marrying any person, or which is
deterrent to marriage insofar as it makes any
person uncertain whether he may marry or
not; such an agreement is void.
For example, a contract not to marry any
person other than the party to it was void on
the ground that if that party had chosen not to
marry, the promisor would be restrained form
marrying at all.
 Similarly, a contract that the plaintiff would not
marry within a certain time would also be void.
Any contract is void which unduly restricts or
hampers the freedom of persons to marry at will.
A contract restricting the right of a girl, who has
attained majority, of marrying according to her
own choice, was held void.
 In Rao Rani v Gulab Rani , a compromise
between co-widows provided that either would
forfeit her share in the properties upon
remarriage was held not in restraint of marriage,
as it did not directly prohibit remarriage.
Another case : A condition in a wakf that if the
widow of a co-sharer remarried she should forfeit
her right to the profits under the wakf, was
accordingly upheld.
 A contract in general restraint of marriage is
unenforceable on the ground of public policy, whether
it contains an express undertaking that the subject
will not marry, or whether on financial or other
grounds it tends to discourage a subject to marry.
(i) Every agreement in total restraint of the marriage of
any person, other than a minor, is void.
(ii) An agreement in partial restraint of the marriage of
any person, other than a minor, is void if the court
regards it as unreasonable in the circumstances of the
cases.

 Agreement in restraint of trade

(S. 27)

An agreement restraining a person from carrying on

a lawful profession, trade or business is void to that
extent.
However, an agreement not to carry on within
specified local limits, a business similar to the
business of which goodwill is sold, can be enforced,
provided the limits of the restraint are reasonable.
Broadly, agreements in restraint of trade are those in
which one or both parties limit their freedom to work
or carry on their profession or business in some way.
Such agreements are attacked because they conflict
with public interest, and because they are unfair in
unduly restricting personal freedom.
 Although such agreements are commonly found
in two types of contracts, viz the sale of goodwill
of a business or professional practice and
contracts of employment; the categories of
restraint of trade 'are not closed', and the
principles are applied to a wide variety of other
similar relationships.
Such agreements are against Public Policy
A doctrine of restraint of trade which refuses to
enforce unnecessary restraints, is justified on the
grounds, first, that autonomy is a crucial
ingredient in individual well-being and law should
not help individuals to give up future autonomy
unnecessarily; and secondly, that unnecessary
restraints hinder the free flow of labour and
resources crucial to the efficient functioning of a
market economy.
 Mahbub Chander vs Raj Koomar 1874- Two shopkeeper
entered into an agreement that one will pay the other to close
his business in that locality. One closed the shop but the other
refused to pay. It was held that the agreement was void. Since
the wordings of section 27 do not do not use the word
"absolute" as in section 28, even if the restraint is partial, it
will be void.
Nordenfelt vs Maxim Nordenfelt Guns and Ammunition
co ltd. 1894- Inventor sold the goodwill of a gun company to
a buyer. The agreement was - Seller will not practice the same
trade for 25 and the seller will not do any business that will
compete with the business carried on by the buyer at that
time. It was held that the first part is valid because it is
reasonable but the second part is invalid because it is
unreasonable.
 Freedom of Press
An agreement that puts a restraint of press
not to publish on the conduct of a person is
void because it is opposed to public policy.

Restriction on Lease
Vidya Wati vs Hans Raj AIR 1993- Lesor of
a property can put a restriction on what kind of
business can be done on the property. It is an
outlet of carrying business and not a restraint .
Exceptions

1. Sale of goodwill
2. Partnership: Under Partnership Act, partners of a firm may restrict their
mutual liberty to do any tradeother than within their firm. An outgoing
partner may also be restricted from carrying on similar trade for a period of
time.
Statutory Exceptions
(1) Under contract Act (Sale of Goodwill)
(2) Under Partnership Act
i) S. 11(2)
ii) S. 36(2)
iii) S. 54
iv) S. 55(3)
The liberty to trade is not an asset which a person can barter away for money
except in special circumstances and within well recognized limitations.
3. Trade Combinations: Companies doing business in
the same field may regulate their trade practices for
example opening and closing time of business even if
they marginally put restraint. However, restrain on
employment are not allowed in disguise of regulation.
Korus Mfg vs Koluk Mfg 1959- Companies made an
agreement that they would not hire anybody who has
worked in the other company in past 5 yrs. Held void.
4. Exclusive dealing agreements
Shaikh kalu v ram saran (1908) 8 CWN 388, Respondent entered
into a contract with all the manufacturers of combs of patna whereby the
latter undertook during their lifetime to sell alltheir product to the former
and not to anyone else. The agreement held to be void as it bound the
manufacturers from generation to generation, it was unrestricted both as
to time and place, it was oppressive to create monopoly.
5. Restraint upon employees/Negative covenants in service
contracts

Niranjan Shankar Golkari vs Century Spinning and Manufacturing

Co 1976 -A company was offered collaboration by a foreign company
on the condition that they will maintain complete secrecy. A person was
employed in the company on the condition that he will not work for any
other company in the same business for 5 years. SC held the agreement
valid.
Gopal papers mills v. ganesh das (AIR 1962 Cal 61)
( apprenticeship for 20 years held unreasonable
hence void.
The restriction beyond the period of employment
would not, be valid. In Brahmaputra tea co ltd v.
Scarth, (1885) 11 Cal 545, condition not to
compete during the term of employment is valid
but void after the term of employment is over.
Agreement in restraint of
legal proceedings (S.28)
This section render the following kinds of
agreement void:
1) An agreement by which a party is restricted
absolutely from his legal rights arising under
legal proceedings
2) An agreement which limits the time within
which the contract rights may be enforced.
3) An agreement which extinguishes the rights of
any party or discharges any party from any
liability under or in respect of any contract at
the expiry of a specified period so as to restrict
any party from enforcing his rights.
1) Restriction on legal proceedings
An agreement by which a party is restricted
absolutely from taking usual legal proceedings, in
respect of any rights arising from a contract.

Musaji lukman v durga dass, AIR 1946 Lah 57.

(parties can choose one of the two tribunals for
disposal of the case.) view upheld by SC in Hukam
singh v Gammon India ltd, AIR 1971 SC 740
(Kedar Nath vs. Sita Ram)
The section does not affect an agreement
whereby parties agree 'not to file an appeal' in a
higher court.
Thus where it was agreed that neither party shall
appeal against the trial court's decision, the
agreement was held valid, for, section 28 applied
only to absolute restriction on taking the legal
proceedings, whereas here the restriction is only
partial as the parties can go to court of law
alright and the only restriction is that the losing
party cannot file an appeal.
Munshi Amir Ali v Maharani Inderjit Koer, Anant
This Section does not prevent the parties to a
contract from selecting one of the two courts which
are equally competent to try the suit.
In A. Milton & Co. vs. Ojha Automobile Engineering
Company's Case, there was an agreement provided -
"Any litigation arising out of this agreement shall be
settled in the High Court of Judicature at Calcutta,
and in no other court whatsoever," The defendants
filed a suit in Agra whereas the plaintiff brought a suit
in Calcutta. It was held that the agreement was
binding between the parties and it was not open to
the defendants to proceed with their suit in Agra.
 Hyman v Hyman. In this case, a covenant in a
separation deed provided that the wife would not
apply to the divorce-court for maintenance and it
was held that it was void as being contrary to
public policy.
In Nihal Chand Shastri v Dilawar Khan, it was
held that a special agreement between an
advocate and his client that the latter would not
be sued for fees has been held void under this
section.
2. Limitation of time
An agreement which limits the time within which
one may enforce his contract rights, without
regard to the time allowed by the Limitation Act.
Insurance policy provided: no suit for recovery after
one year of the death of assured, held void.
3. Extinguishment of rights or discharge from
liabilities
 Exceptions
1. Reference of future disputes to
arbitration
2. Reference of existing dispute to
arbitration
UNCERTAIN AGREEMENTS S.
29
Agreement to agree in future is void for there is no
certainty for parties to agree in future.

Guthing v. Lynn (1833) 2 13 Ad 232 horse if

brings luck, held void.
Read illustrations
WAGERING AGREEMENT
S. 30
A & B agree that if it rains today A will pay Rs 50
and if it does not than B will pay A Rs. 50 is a
wagering agreement.
Anson says wager is a promise to give money or
moneys worth upon the determination or
ascertainment of an uncertain event.
Thacker v Hardy (1878) 4 QBD 685, The essence
of gaming and wagering is that one party is to win
and other to lose upon a future event which at the
time of the contract is of an uncertain nature that
is to say, if the event turns out one way A will
lose, but if it turns out the other way he will win.
 Thus the essentials of a wagering agreement are :
1) There must be a promise to pay money or moneys worth
2) The promise must be conditional on the happening or not
happening of an event.
3) The event must be of uncertain nature
4) Each party must either win or lose, whether he will win or
lose being dependent on the determination of the event.
If either of the parties may win but cannot lose, or may
lose but cannot win it is not wager.
5) Neither of the parties should have any other interest in
the agreement than the sum or stake he will so win or
lose, i.e. there should be no other real consideration for
the making of the agreement.
 Babasaheb Rahimsaheb v. Rajaram, AIR 1931
Bom 264
Money to be paid to wrestlers, valid since parties
were not loosing anything.
Diggle v Hige (1877) 2 Ex D 422
Both parties deposited some amount. Looser to
forfeit his share held to be void.
 Lotteries: its a game of chance, hence wager.
Sec 294A IPC makes it an offence hence
forbidden by law hence not only void but illegal
as well.
 Effect of wagering agreements
Void , no suit shall be brought for recovering
anything alleged to be won on any wager.
Wager is void and unenforceable except in state
of Maharashtra and Gujrat.
Subhash Kumar v. State of MP , AIR 2000 MP 109
Court said though wager is void and
unenforceable, it is not forbidden by law and
therefore the object of collateral agreement is not
unlawful u/s 23.
 In Subhash kumar v state of MP (AIR 2000 MP
109)
It was observed by the HC of MP :
To treat an agreement by way of wager as void is
that the law discourages people to enter into
games of chance and make earning by trying their
luck instead of spending their time, energy and
labour for more fruitful and useful work for
themselves, their family and the society.
 Exceptions
1. Horse race:
Horse racing is not gambling
K.R.Lakshman v. State of TN (1996) 2 SCC 226,
. The SC held that the business of horse racing in the country did not constitute either
gambling or gaming but was a game of mere skill, thus giving a boost to the multi-
million rupee sport. In a landmark verdict, a three-judge bench comprising justice
kuldip singh, justice B.L.Hansaria and Justice S.B. Majumdar decisively ruled that the
sport cannot be prohibited by the government under the directive principles of state
policy, and such restraints were applicable only to bucket shops (an office for
gambling in stock and speculating on markets). The judgement came on a batch of
writ petitions and civil appeals filed by the madras race club.
. The madras race club staff union, the race house owners federation of India, and
others challenging the state governments curbs on the sport on the ground that they
were prohibited by the madras city police act and the madras city gaming act. In an
unanimous verdict read out by justice kuldip, the court ruled that the provisions of
these two acts did not cover the sport of horse-racing.
. The court set aside a madra high court judgement upholding the madras race club
asquisition and transfern of undertakings act 1985, which sought to abolish horse-
racing, and held the legislation was unconstitutional.
 Niranjan shankar v. century spinning 7
manufacturing co. ltd. AIR 1967 SC 1098
(Negative covenants operating during the period of
the contracts of employment are not generally
regarded as in restraint of trade.)