11 Important Agreements which has been Expressly Declared as Void by the Indian Contract Act

Some of the agreements which have been expressly declared as void by the Indian Contract are:-

Agreements

1. Agreements made by incompetent parties. (Sec. 11).

2. Agreements made under a mutual mistake of fact. (Sec. 20).

3. Agreements the consideration or object of which is unlawful. (Sec. 23).

4. Agreement, the consideration or object of which is unlawful in part. (Sec. 24).

5. Agreements made without consideration. (Sec. 25).

6. Agreements in restraint of marriage. (Sec. 26).

7. Agreement in restraint of trade. (Sec. 27).

8. Agreement in restraint of legal proceedings. (Sec. 28).

9. Agreement the meaning of which is uncertain. (Sec. 29).

10. Agreements by way of wager. (Sec. 30).

11. Agreements to do impossible acts. (Sec. 56).

Few agreements have already been discussed at the appropriate places, while others, are discussed here as under:-

1. Agreements in restraint of marriage (Sec. 26):

An agreement in restraint of marriage of any person, other than a minor is void. Marriage is the fundamental right of every person. Therefore, an agreement in restraint of this fundamental right of a person is opposed to public policy and void.

2. Agreements in restraint of trade (Sec. 27):

Law has assigned freedom of contract and freedom of trade to every person. Therefore, any agreement depriving a person of this freedom is unlawful and void. Thus, an agreement in restraint of trade of any person is opposed to public policy and void as per Sec. 27.

Exceptions to the Rule

Following are the exceptions to the rule, “All agreements in restraint of trade are void.”

(i) Sale of goodwill:

As per Explanation 1 to Sec 27, a seller of goodwill of a business may agree with the buyer to restrain from carrying on a similar business within specified limits as to territories and time, so long as the buyer or any one deriving title to the goodwill from him (seller) carries on a like business. However, in the opinion of the court such restraint should be reasonable.

{Chandra Vs. Mallik (1921) 48, Cal. 1030]

Thus, a seller of goodwill may be restrained from carrying on:-

(a) A similar business;

(b) Within specified local limits;

(c) So long as the buyer or his representative in the title carries on the like business; and

(d) Provided, the restraint is reasonable in point of time and place.

(ii) Agreements of partners:

The Indian Partnership Act, 1932 has also laid down certain exceptions to the rule that “All agreements in restraint of trade are void.” These exceptions are :-

(a) As a partner in the firm:

Under Sec. 11(2) of the Indian Partnership Act, “A partner shall not carry on business other than that of the firm, while he is a partner.”

(b) As on outgoing partner:

Under Sec. 36(2) of the above Act, “An outgoing partner may agree with his partners not to carry on a business similar to that of the firm within a specified period or within specified local limits.

(c) In case of dissolution of the firm:

According to Sec. 54, “Partners may upon or in anticipation of the dissolution of the firm make an agreement that some or all of them will not carry on a business similar to that of the firm within specified period or within specified local limits.

(d) In case of sale of goodwill of the firm:

Sec. 55(3) of the Act states that “Any partner may upon the sale of goodwill of the firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits.”

Thus, the agreements mentioned above are, no doubt, in restraint of lawful trade, but they will be valid if the courts think them as reasonable,

(iii) Trade combinations:

There is difference between the restraints in the exercise of a lawful business and the restraints in the exercise of freedom of action in actual conduct of lawful business. The former is void, while the latter is valid.

Therefore, the trade combinations which restrain the traders to use malpractices to maximize their profits, or to minimize natural competition to save them from unwanted competition, are valid. Therefore, an agreement between the traders not to sell their goods at a price below the one agreed upon, and to share the profits in a certain proportion is not void.

(iv) Service contracts:

Sometimes the service conditions of an employee may restrain him from accepting any other engagement during his employment. It will be a valid agreement as an employer may bind his employees by any lawful terms and conditions.

But a similar condition to restrain an employee from any other engagement after his retirement will be void, e.g., not allowing private practice to doctors working in hospitals is a valid condition and does not come within the scope of restraints under Sec. 27.

A restraint to protect an employer against an employee, making the use of his trade secrets having become known to him during the course of his employment, is valid.

Submitted by : Professor Naresh, Category : Knowledge, Tag : Essay on National Language