Void Agreement-The Indian Contract Act 1872 Notes

LLB 1st Year Semester Law of Contract 1 Void Agreement Notes- Prolawctor

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]
  2. Agreement entered into through a mutual mistake [20]
  3. Object or consideration – unlawful [23]
  4. Consideration or object partially, unlawful [24]
  5. Without consideration [25]
  6. Restraint of marriage [26]
  7. Restraint of trade [27]
  8. Legal proceeding [28]
  9. Consideration identified [29]
  10. Wagering agreement [30]
  11. Impossible agreement [56]
  12. 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.

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.

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.

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.

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 impose upon husband from marrying a second wife.

Agreement in Restrain of trade [27]

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.
    • Must relate to same business
    • Restriction shall apply within specified Local limits.
    • Restriction shall apply within a reasonable time period
    • The specified local limits – depends on nature of business.
  • Restriction on existing partner [11(2)]
    Not carry on business other than business of the firm till he is partner.

  • Restriction on outgoing partner [36]
    Not carry on a similar business after retirement
    Local limits + specified period – local limit – nature of business
  • 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.

  • 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.

  • 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.
  2. 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.
  3. 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.

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.

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 arises.
  • Which may arise
  • Which has already arisen?

Ex. 3: An agreement not to go in appeal to higher court against the judgment of a lower court not amount to restart of legal proceeding.

An agreement the meaning of which is not certain (Sec 29)

  1. An agreement is called an uncertain agreement when the meaning of that agreement is not certain or capable of being certain. Such agreements are declared void u/s 29.

    To know more about the capacity to contract and its exception under The Indian Contract Act 1872 Notes click here
  2. Areas of uncertainty: Uncertainty may relate to – (a) Subject Matter of Contract; or (b) Terms of contract.
    1. Subject Matter: There may be uncertainty as regards –
      1. (i) existence;
      2. (ii) quantity
      3. quality;
      4. (iv) price; or
      5. (v) title to the subject matter.

    2. Terms of Contract: There may be uncertainty as regards – (i) existence (ii) quality; (iv) price; or (v) title and other terms in the contract.
  1. A says to B “I shall sell my house; will you buy?” A says, “Yes, I shall buy”. Due to uncertainty of price, the agreement is void and unenforceable. There is binding contract.
  2. A agreed to pay a certain sum, when he was able to pay. Held, the agreement was void for uncertainty.
  3. D agrees to sell his white horse, for Rs.5,000 or Rs.10,000.


An agreement between two persons under which money or money’s worth is payable by one person to another on the happen or non happening of a future uncertain event is called a wagering agreement.

  • X promise to pay Rs. 1000 to Y if it is rained on a particular day, and Y promise to pay Rs.1000 to X if it did not.
  • Wagering agreement is promise to give money or money’s worth upon  the determination of uncertain event.- Sir Willian Anson.

Essential elements of wagering agreements

  • The must be a promise to pay money or money’s worth
  • Performance of a promise must depend upon determination of uncertain event. It might have already happened but the parties are not aware about it.
  • Mutual chancels of Gains or Loss.
  • Neither party to have control over the events
  • Neither party should have any other interest in event.
  • One party is to win and one party is to lose.

Ex. 1:- Agreement to settle the difference between the contract price and market price of certain goods or shares on a particular day.

Ex. 2: A lottery is wagering agreement. Therefore, an agreement to buy and sell lottery tickets  is a wagering agreement. Section 294 – A of the Indian Penal Code declares that drawing of lottery is an offence. However, the government may authorize lotteries. The persons authorized to conduct lotteries are exempt from the punishment. But, the lotteries still remain a wagering transaction.

Ex. 3: However, if the crossword puzzle prizes depend upon sameness of the competitor’s solution with a previously prepared solution kept with the organizer or newspaper editor, is a lottery and, therefore, a wagering transaction.

Ex. 4: However, when any transaction in any commodity or in shares with an intention of paying or getting difference in price, the agreement is a wager.

Agreement not held as wagers

  • Prize in terms of Prize competition Act, 1955 not exceeding Rs.1000 is not wagering agreement.
  • Horse race [500] – An agreement to contribute a plate or prize.
  • Contract of insurance utmost in good faith eg. Favour in public policy.
  • Share market transaction A commercial transaction should always be distinguished from a pure speculative transaction. A commercial transaction is done with an intention of delivery of goods (commodity or security) and payment of price. Therefore, it is not wagering agreement.
  • Crossword competition involving skill for its solution. If skill plays an important role in the result of a competition and prize depend upon the result, the competition is not Involve applications of skill and prizes are awarded to the participants on the basis of merit of their solutions and not on chance. Therefore, such competitions are valid and are not wagers.
  • Athletic Competitions also fall in the category of games of skill. Therefore, these are also not wagers.
    Example: A and B, two wrestlers, agreed to enter into a wrestling contest in Ahmedabad on a certain day. They further agreed that a party failing to appear on the fixed day was to forfeit Rs.500 and the winning party will receive a sum of Rs.1,000. Held, it was not a wagering agreement.
  • Contribution to chit fund is not wager – contributions made by the members are refunded by draw of lots.

Effects of wagering agreements:-

  • Agreement is void.
  • No suit can be filled for any recovery of the amount won on any wager.
  • It is not illegal. Any agreement collateral to wagering agreement is valid.
  • However, it is illegal in state of Maharashtra and Gujarat.

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