LEGALITY OF CONTRACT & AGREEMENT DECLARED VOID. According to Section 23 of the Indian Contract Act , an agreement of which the object or consideration is unlawful is void . Object means purpose or design of the contract. It implies the manifestation of intention .
AGREEMENT DECLARED VOID
According to Section 23 of the Indian Contract Act , an agreement of which the object or consideration is unlawful is void . Object means purpose or design of the contract. It implies the manifestation of intention .
The word ‘lawful’ means ‘permitted by law’. Section 23 of The Contract Act speaks of three things :-
Consideration for the agreement
Object for the agreement
The consideration or the object of an agreement is unlawful in the following cases :
If it is forbidden by law
It is of such a nature that if permitted it would defeat the provisions of any by law
If it is fraudulent
If it involves or implies injury to the person or property of another
If the court regards it as immoral
If the court regards it as being opposed to public policy
AGREEMENTS OPPOSED TO in the following cases :
Trading with enemy
Maintenance and Champerty
Traffic relating to public offices
Agreement tending relating to create interest opposed to duty
Marriage brocage agreements
Agreement tending to create monopolies
Agreements to influence elections to public offer
Agreement in restrain of personal liberty
Agreement interfering with marital duties
VOID AGREEMENT in the following cases :
All agreements may not be enforceable at law. According to section 2(g) ,an agreement not enforceable by law is void. Such an agreement does not give rise to any legal consequences and is void ab initio.
The following agreements are declared void by Indian Contract Act:
1. Agreement made by incompetent parties (sec11).2. Agreement made under a mutual mistake of fact (sec20).3. Agreement, consideration or object of which is unlawful (sec23).4. Agreements, consideration or object of which is unlawful in part (sec24).5. Agreements made without consideration (sec25).6. Agreements in restraint of marriage (sec26).7. Agreements in restraint of trade (sec27).8. Agreements in restraint of legal proceedings (sec28).9. Agreements the meaning of which is uncertain (sec29).10. Agreements by way of wager (sec30).11. Agreements to do impossible acts (sec56).
1. AGREEMENTS IN RESTRAINT in the following cases :
An agreement in restraint of marriage of any person other than a minor is void (sec 26). Every person has the freedom to marry. A person is not bound by law to marry, but an agreement restraining a person not to marry is contrary to public policy and illegal and hence void.
2. UNCERTAIN AGREEMENTS
Section 29 provides that an agreement the meaning of which is not certain or capable of being made certain is void. If there is ambiguity in wording of contract, it is not possible to read the exact intention of the parties to the contract. Thus an agreement to sell at a concessional rate is void for uncertainity. Similarly, an agreement to pay rent in cash without the rate being definitely fixed is void for uncertainity.
3. AGREEMENT IN RESTRAINT OF TRADE in the following cases :
An agreement seeking to restrain a person from exercising a lawful profession, trade or business of any kind is void to that extent (Section 27). All agreements in restraint of trade whether general or partial, qualified or unqualified are void, subject to exceptions laid down in the section 27.
A) Statutory Exceptions
i) Sale of Goodwill [sec27]: On sale of goodwill, seller may agree not to carry on similar business within specified local limits so long as buyer carries on like business therein, provided that such limits appear to court as reasonable.ii) Under Partnership Act 1932: There are 4 exceptions:a) Partner’s competing business: A partner of a firm may be restraint from carrying on a similar business, so long as he remains a partner.b) Rights of outgoing partner: A partner may agree with his partners that on ceasing to be a partner he will not carry on a similar business within a specified period or within specified local limits.c) Partner’s similar business on dissolution: Partners may, in anticipation of dissolution of the firm, agree that some of them shall not carry on similar business within a specified period or local limits.d) Agreement in restraint of trade: A partner upon sale of goodwill of firm, may make an agreement with the buyer that such partner will not carry on any business similar to that of firm within a specified period or local limits.
B) Exceptions under common law in the following cases :
i) Service agreements: During employment, agreements of service often contains a clause by which employee is prohibited from working anywhere else during the term of agreement. A restraint on an employee not to engage in similar business or not to accept a similar engagement after termination of service is void.
ii) Trade combinations: An agreement between different firms in the nature of a trade combination in order to maintain a price level & avoid underselling is not illegal.
iii) Agreement in restraint of legal preceedings (sec28): Every agreement by which a party is restrained absolutely from enforcing his rights under contract by ordinary legal proceedings in the ordinary tribunals, or which limits the time within which he can enforce his rights, is void to that extent. The exceptions to this rule are:
a) An agreement to refer all future disputes in connection with a contract to arbitration.b) An agreement to refer all present disputes with regard to a contract to arbitration.c) An agreement restricting the right of either party to sue in particular court.
4. AGREEMENTS BY WAY OF WAGER (SECTION 30) in the following cases :
A wager may be defined as an agreement to pay money or money’s worth on happening of a specified uncertain event. So, agreements by way of wager are void.
i) Must be a promise to pay money or money’s worth.ii) Promise must be conditional on an event happening or not happening.iii) Must be uncertainity of event which may be past, present or future.iii) Must be two parties & loss of one must be gain of other.iii) Must be a common intention to bet at the time of making agreement.
EFFECTS OF TRANSACTIONS COLLATERAL TO WAGER in the following cases :
A wagering contract being only void & not illegal, a collateral contract can well be enforced at law.
COMMERCIAL TRANSACTIONS AND WAGERS
The intention to wager must be on the part of both contracting parties. If only one of the parties to the agreement had intention that agreement should be for the payment of differences & other party was not aware of fact, the agreement is enforceable.LOTTERY:- Where a wagering transaction amounts to a lottery, it is illegal & punishable under sec 294-A of Indian Penal Code.WAGER & INSURANCE CONTRACTSA contract of insurance is not a wager though it is performable upon an uncertain event. It is so because the parties therein have an interest in the contract. But an insurance on the life of a person in which the insurer has no interest is void as being a wager.