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VOID AGREEMENTS

Lecture 4

An agreement not enforceable by law is said
to be a void agreement in terms of Section
2(g). It does not give rise to any legal
consequences and is void ab initio.
Agreement Expressly
Declared Void
1. Agreement by incompetent persons [Sec. 11]
2. Agreements made under a bilateral mistake of fact
material to the agreement [Se. 20].
3. Agreements with unlawful objects or consideration
[Sec.23].
4. Agreements of which consideration or object is
unlawful in part [Sec.24].

5. Agreements made without consideration[Sec. 25].

6. Agreements in restraint of marriage [Sec. 26].
7. Agreements in restraint of trade [Sec.27].
8. Agreements in restraint of legal proceedings
[Sec.28].
9. Agreements the meaning of which are uncertain
[Sec.29].
10. Agreements by way of wager [Sec. 30].
11. Agreements contingent on impossible event
[Sec.56].
12. Agreements to do impossible acts [Sec.56 part 1].

Agreements of which consideration or object
is unlawful in part [Sec.24].
1. Where the legal part can not be separated from the
illegal part then
(a)If there are several objects but a single consideration,
the agreement is void if any one of the objects is unlawful.
(b)If there is a single object but several consideration, the
agreement is void if any one of the considerations in
unlawful.
Eg.: A agrees to supervise on behalf of B a
legal manufacture in indigo and an illegal
traffic in other articles for a salary of Rs.
10,000/- a year. The Agreement is void, the
object of As promise and the consideration
of Bs promise being in part unlawful.

2. Where there is a reciprocal promise to things
legal and also the things illegal, and the legal part
can be separated from the illegal part, the legal part
is a contract and the illegal part is a void agreement.
Eg.: A agrees to sell his house to B for Rs. 10,000/- ,
but that if B used it as a place of gambling, he shall
pay Rs. 50,000/- to A. The first part of the
agreement is valid and binding but the second part
shall be void and unenforceable.

3. In the case of an alternative promise, one
branch of which is legal and the other illegal,
the legal branch alone can be enforced.

Eg.: A agrees to pay B Rs. 1000/- for which B is
to deliver either rice or smuggled opium. There
is a valid contract to deliver rice and a void
agreement as to opium.
Agreement in Restraint of marriage:

Every agreement in restraint of marriage of any
person, other than a minor is void.

Eg.: In Lower Vs. Peers, P promised to marry L only
and none else and to pay a definite sum if he
married someone else. P married X . Held L could
not recover the sum as the agreement was in
restraint of marriage and therefore unenforceable.

Agreement in restraint of Trade:

Every agreement by which anyone is restrained
from exercising a lawful profession, trade or
business of any kind, is to that extent void.

Eg: In Madhub Chander Vs. Raj Koomar, A and B
were rival shopkeepers in a locality of Kolkata. B
agreed to pay A, a sum of money if he would close
his business in that locality. A did so but B refused
to pay him. Held , the agreement was void.

A. Statutory Exception

1. Sale of goodwill
(a) The seller should be restrained only from carrying
on a similar business.
(b) The restriction shall apply so long as the buyer or
any person deriving title from him, is carrying on a
similar business.
(c) The restraint should apply only within specified
local limits.
(d) The restraint must be reasonable in the eyes of the
court.

Eg.: A is running a grocery shop in
Connaught Place. He sells his business to B
on the condition that A will not run a similar
business within specified limits. This
restriction is valid. But a restriction on
A for not carrying on similar business
anywhere in India, will be a restraint of trade
and hence void.


2. Exceptions mentioned in the Partnership
Act.
a) Restriction on existing partner
b) Restriction on outgoing partner
c) Restriction in anticipation of dissolution
d) Restriction in case of sale of goodwill of
the firm

B. Judicial Exceptions:
a. Trade combinations.

b. Service Contracts

c. Exclusive Dealing Agreements:

Eg.: In Narayan Shankar Golikar Vs Century Spg. &
Mfg. Co.Ltd., an employee was restrained by the
service contract from serving anywhere else during
the five years even after he had left the
employment. The restraint was imposed because
he had access to technical information. The
employee left the organization and took up
employment in another Firm. The former
employer could successfully prevent him by means
of an injunction.

Restraint of Legal
Proceedings

Every agreement which restricts any party
absolutely from enforcing his rights under a
contract, or which limits the time of their
enforcement, or which extinguishes the rights of a
party, or discharges a party from liability under a
contract on the expiry or a specific period, is to
that extent void.

a. Absolute restriction on legal proceeding

b. Agreements curtailing the limitation period

c. Extinguishment of rights after expiry of specific
period

d. Agreement discharging a party from liability after
expiry of specified period.

Eg.: A pays an advance of an advance of Rs.
2 lac out of total price of Rs. 20 lac to B for
the purchase of a flat. The contract provides
that if a fails to take possession within 3
months, his right to take possession will be
lost. Since there is an extinguishment of
right, it is void.

Exceptions to Sec. 28.

(a) Agreement to refer a present dispute to
arbitration.

(b) Agreement to refer a future dispute to
arbitration and to recover only the amount
awarded in such arbitration in respect of the
dispute so referred.

Agreement the meaning of which is
uncertain.


Agreements the meaning of which is not
certain or capable of being made certain are
void.
In Guthina Vs. Lynn, a horse was brought for a
certain price, coupled with a promise to give 5
pounds more if the horse proved lucky. The
agreement was held to be void for want of
certainty.

Wagering Agreements Section 30.

Wager is an agreement between two parties in
which one promises to pay money or moneys
worth on the happening of some uncertain event in
consideration of the other partys promise to pay if
the event does not happen.
Eg.: A and B may make an agreement that A shall
pay to B Rs. 50/- if it rains on Monday, and that B
shall pay to A the same amount if it does not rain.

Essentials of a Wager
1. Money or moneys worth
2. Event
3. Uncertainty of the event.
4. Mutual chances of gain or losses
5. No control over the event.
6. Stake as the only Interest

Effects of Wagering Agreements

According to Sec. 30 , no suit can be brought to
recover anything alleged to be won on any wager
or entrusted to any person to abide by the result of
any game or other uncertain event on which any
wager is made.

Exceptions to Wager:

1.Horse race
2. Cross word competitions
3. Games of Skill
4. Share market transactions
5. Contracts of Insurance
6. Chit fund
S.
No.
Wagering Agreements Insurance contracts
1. There is no insurable
interest except for the
stake
The assured has an insurable
interest in the subject matter
2. These are void as these
are not contracts of
indemnity
These are valid contracts
being contracts of indemnity.
Their object is to make good
the actual loss of the insured.
Difference between Wagering Agreement and
Insurance Contracts
3. These are conditional These are contracts of
indemnity except life insurance
contracts which are contingent
contracts
4. It is just a gamble These are based on scientific
and actuarial calculation of
risks
5. It is of no benefit to
the society
It is a form of social
cooperation
Collateral Transactions:

Though wagering agreements are void,
agreements collateral or incidental to them
are valid.
Eg.: A instructs his agent B to bet with C. B
lost and had to pay out of his own pocket.
Since payment by B is on behalf of his
principal, it is a collateral transaction. B can
recover from A.

Agreements to do Impossible Acts
[Sec. 56]

An agreement to do an act impossible in
itself is void.

Eg.: A agrees to put life into the dead body
of Bs father. It is void for want of possibility.

Contingent Contracts

Contracts may be either absolute or
contingent.

Eg. : A contracts to pay B Rs.
10,000/- if Bs house is burnt. This
is a contingent contract.

Essential elements of a Contingent
Contract:

1. The performance of the contract depends
on the happening or non happening of an
event in future.
2. The event must be uncertain
3. The event must be collateral to the
contract
4. The event should not be at the discretion
of the promise

Rules regarding contingent contracts
[Sec 32 to 36]

1. Contracts contingent on the happening of event.
2. Contracts dependent on the non happening of
an event.
3. Contracts contingent upon the future conduct of
a living person.
4. Contracts contingent upon the happening or
non happening of a specified event within a fixed
time.
5. Contracts contingent upon the happening of an
impossible event.

1. Contracts contingent on the happening of event.

Eg.: i) A makes a contract with B to buy Bs horse if
A survives C. The contract can not be enforced
until C dies in As life time.

ii) A contracts to pay B a sum of money when B
marries C. C dies without being married to B. The
contract becomes void.

2. Contracts dependent on the non
happening of an event.

Eg.: A agrees to pay B a sum of money if a
certain ship does not return. The ship is
sunk. The contract can be enforced when
the ship sinks and not before.

3. Contracts contingent upon the future
conduct of a living person.

Eg.: A agrees to pay B a sum of money if B
marries C. C marries D. The marriage of B to
C must be considered impossible although it
is possible that D may die and C may
afterwards marry B.

4. Contracts contingent upon the happening or
non happening of a specified event within a fixed
time.

Eg.: i) A promises to pay B a sum of money if a
certain ship returns within a year. The contract
may be enforced if the ship returns within a year
and becomes void if the ship is sunk within a year.
ii) A promises to pay B a sum of money if a certain
ship does not return within a year or is burnt within
a year. The contract may be enforced if the ship
does not return within a year or is burnt within a
year.

5. Contracts contingent upon the happening
of an impossible event.

Eg.: A agrees to pay B Rs. 1000/- if two
straight lines should a enclose a space. The
agreement is void.

Difference between Wagering Agreement and
Contingent Contract
S.
No.
Basis of
difference
Wagering agreement Contingent
contract
1. Interest in
the subject
matter
The parties do not have
insurable interest in the
happening or the non-
happening of the event
as such. Their main
interest is in winning or
losing
The parties have
insurable interest
in the happening
or non-happening
of the event
2. Future event The future uncertain
even is the sole
determining factor of
the agreement.
The future event is
only collateral or
incidental to the
contract
3. Nature These are contingent in
nature
All contingent
contracts, such as
insurance, indemnity
and guarantee are not
wagers.
4. Reciprocal
promises
It consists of reciprocal
promises.
There need not be
reciprocal promises.
5. Validity It is void. It is a valid contract.
Quasi Contract
Under the Law of Contracts, the
contractual obligations are voluntarily
undertaken by the contraction parties.
However in certain circumstances, the
obligations of a contract may be
imposed by law.. These are called Qausi
contractual obligations.
Provisions relating to Quasi Contracts
1. Claim for necessaries supplied (Sec. 68)
2. Reimbursement of person paying money due by
another in payment of which payer is interested
(Sec. 69)
3. Obligation of a person enjoying the benefit of
non-gratuitous act (Sec. 70)
4. Responsibility of finder of goods (Sec. 71)
5. Liability of the person to whom money has been
paid or anything delivered by mistake or under
coercion (Sec. 72)
1. Claim for necessaries supplied
(Sec. 68)

(a) There must be a supply of necessaries to a
person who is incompetent to contract such as a
minor or a person of unsound mind or
dependents of such incompetent persons.
(b) The term necessaries shall be construed in
accordance with the situation in life of the
incompetent person, the nature of goods, the
extent of supplies, etc.
(c) The supplies can claim only reasonable value for
the supplies made.
(d) The reimbursement of the price of goods
supplied can be obtained from the property of the
incompetent person who cannot be held personally
liable.

Example:
A supplies B, a lunatic with necessaries suitable to
the condition in life. A is entitled to be reimbursed
from Bs property.

2. Reimbursement of person paying
money due by another in payment
of which payer is interested (Sec. 69)

(a) The plaintiff must be interested in making the
payment.
(b) The plaintiff should not be bound to make the
payment.
(c) The dependent should have a statutory or
contractual liability to pay.
(d) The plaintiff should have made the payment to
another person and not to himself.
Examples
A is bound by law to make a certain payment. B is
interested in such a payment, and he makes it,
there will be a quasi contractual obligation of A to
reimburse B.

In Govindram Gordhandas Sekdaria vs. State of
Gondal, a Maharaja sold certain mills without
paying overdue muncipal taxes. The buyer paid the
taxes to save the property from being sold and
then sued the Maharaja. The Privy Council held
that the Maharaja was bound to pay within the
meaning of Sec. 69.
In Secretary of State vs. Femandes, the government
was the permanent tenant of the landlord. Arrears
of revenue were due from the landlord to the
government. The government paid the arrears to
itself. Held, the government cannot recover from
the landlord as it made the payment to itself than
another person.

3. Obligation of a person enjoying
the benefit of non-gratuitous act
(Sec. 70)

(a) A person should lawfully do something for
another person or deliver something to him

(b) In doing the said thing or delivering the said
thing, he must not intend to act gratuitously, and

(c) The other person for whom something is done
or to whom something is delivered must enjoy the
benefit thereof.
The provision of Sec. 70 is attracted
in the following circumstances
(a) There must be something lawfully done or
delivered to another person.

(b) The person doing the act should not have
intended to do it gratuitously.

(c) The act must not have done against the will of
their party.
4. Responsibility of finder of goods
(Sec. 71)

(a) To take reasonable care of the goods as a man
of ordinary prudence would take of his own goods.

(b) To take steps to trace the true owner.

(c) Not to make unauthorized use of the goods.

(d) To return the goods to the true owner
The finder has the following rights in
respect of the goods found:
(a) To receive compensation for the expenses
incurred by him in preserving the goods or finding
the true owner.
(b) To retain possession until the payment of his
rightful expenses.
(c) To sell the goods if the true owner cannot be
found after reasonable search, or the true owner
refuses to pay the lawful charges of the finder and
when goods are in danger of perishing, or the charges
of finder exceed two-thirds the value of the goods
found.
5. Liability of the person to whom
money has been paid or anything
delivered by mistake or under
coercion (Sec. 72)

A and B jointly owe Rs. 100 to C. A alone pays the
amount to C. B, not knowing this fact, pays Rs 100
over again to C. C is bound to refund the amount to
B.
Contracts of Indemnity
and Guarantee
According to Section 124, a contract of
indemnity means a contract by which
one party promises to save the other
from loss caused to him by the conduct
of the promisor himself or by the
conduct of any other person.
A contracts to indemnify B against the
consequences of any proceeding which C may take
against B in respect of a certain sum of Rs. 200.
This is a contract of indemnity.

Section 124 has restricted the scope of indemnity
only to cases where loss is caused by a human
agency namely:
(a) by the conduct of the promisor
(b) by the conduct of a third party

In Secretary of State vs. Bank of India Ltd., A was
the holder of a government promisory note. B, a
broker forged the signatures of A and endorsed the
note in favour of a bank. The bank got the note
renewed from the government. A recovered
compensation from the government and the
government got damages from the bank. The bank
was held liable on the basis of implied promise by
the bank to indemnify the government.
Rights of the indemnity
holder
(a) All damages which he may be compelled to pay in a suit
in respect of any matter to which the promise to
indemnify applies.
(b) All costs which he may be compelled to pay in bringing or
defending such suits provided he acts in such a way as a
prudent man would under similar circumstances in his
own case, or with the authority of the promisor.
(c) All sums which he may have paid under the terms of any
compromise of any such suit. But it should not be
contrary to the orders of the promisor and should be
prudent or authorised by the promisor.
Commencement of Indemnifiers
liability
There is no provision in the Contract Act relating to
the commencement of indemnifiers liability.

If the indemnifier has incurred a liability and that
liability is absolute, he is entitled to call upon the
indemnifier to save him from that liability and pay
it off.
Contracts of Guarantee (Sec.
126)
a contract to perform the promise or to discharge
the liability of a third person in case of his default
Objectives:
(a) to secure the performance of a mercantile promise
(b) to secure the honesty and fidelity of someone
(c) to secure a person from injury arising out of some
wrong committed by another
Eg. A advances a loan of Rs. 5000 to B in
consideration whereof C promises with A that if B
does not repay, C will.

Requisites of a Valid Guarantee
1. Principal debt
2. Consideration
3. Competent parties
4. No misrepresentation
5. Suretys liabilities must be conditional
6. Concurrence of all the three parties
7. Writing not compulsory
Difference between Indemnity and
Guarantee
1. Number of Parties
Contract of indemnity has two parties, namely,
indemnifier and indemnified.
Contract of guarantee has three parties, viz.,
creditor, principal debtor and surety.
2. Nature of Liability
Liability of indemnifier is primary in nature.
Liability of surety is secondary. It arises only if the
principal debtor does not pay
3. Number of Contracts
There is only one contract between the
indemnifier and the indemnified.
It has three contracts as follows:
a) Between principal debtor and the creditor
b) Between the creditor and surety
c) Between the surety and principal debtor
4. Request
It is not necessary for the indemnifier to act at
the request of the indemnified.
It is necessary that surety should give the
guarantee at the request of the debtor.

5. Existence of Risk
The liability of the indemnifier arises only on the
happening of a contingency
There is an existing liability the performance of
which is guaranteed by the surety
6. Rights of Parties
Indemnifier cannot bring a suit against a third
party in his own name unless there is assignment
of claim in his favour.
The surety can proceed against the principal
debtor in his own right after he has discharged the
liability of the principal debtor.
7. Parties interests
Indemnifier may have some other interest than
indemnity.
The surety should have no other interest in the
transaction apart from guarantee.
8. Purpose
The object of indemnity is to provide security
against loss.
The object of guarantee is to provide security to
the creditor against default by the principal debtor.
Kinds of Guarantee
1. Retrospective Guarantee
2. Prospective Guarantee
3. Specific Guarantee
4. Continuing Guarantee

A in consideration that B will employ C in
collecting the rent of Bs Zamindari, promises
B to be responsible, to the amount of Rs.
5000, for the due collection and payment by
C of those rents. This is a continuing
guarantee. When a guarantee is continuing,
it is not exhausted by the first advance or
credit upto the specified limit.

Revocation of Continuing
guarantee
(i) By notice (Section 130)

(ii) By death of the surety (Section 131)
Nature and Extent of Suretys
Liability
1. Coextensive
2. Secondary Liability
3. Surety, a favoured debtor
4. No privity of contract
5. Liability for minor debts
6. Surety is liable despite contract principal debtor
and creditor being void
Rights of Surety
1. Rights against the Principal debtor

2. Rights against the Creditor

3. Rights against Co-sureties
1. Rights against the Principal
debtor

(a) Right of indemnification (Sec. 145)
Eg. B is indebted to C. A is a surety for the debt. C
demands payment from A and on his refusal sues
him. A defends the suit having reasonable ground
for doing so. But he is compelled to pay the
amount of debt with costs. He can recover from B
the amount paid by him for costs as well as the
principal debt.
(b) Right of subrogation (Sec. 140)
(c) Right to seek relief from liabilities
2. Rights against the Creditor

(a) Before payment of the guaranteed debt
(b) Right of set off
(c) Right to securities
(d) Right of subrogation
(e) Right to equities
3. Rights against Co-sureties

(a) Co-sureties liable to contribute equally

Eg. A, B and C are sureties to D for the sum of Rs
3000 lent of E. E makes default in payment. A, B
and C are liable as between proceed themselves to
pay Rs 1000 each.
(b) Liability of co-sureties bound in different sums

Eg. A, B and C, as sureties for D, enter into three
several bonds, each in different penalty, namely A
in the penalty Rs. 10000, B in that of Rs. 20000, C in
that of Rs 40000, for Ds duly accounting to E. D
makes default to the extent of Rs 30000. A and B
and C are each liable to pay Rs 10000
(c) Right to share benefit of security
(d) Effect of release of a surety

Discharge of Surety
1. By revocation

2. By improper conduct of creditor
1. By revocation
(a) By notice of revocation in the case of continuing
guarantee as regards future transactions

(b) The death of surety operates as termination of
continuing guarantee as to future transactions
2. By improper conduct of creditor

(a) Variation in terms of the original contract
between the principal debtor and the creditor
without the consent of surety
Eg. X agrees to appoint Y as a clerk at a yearly
salary. Z stands surety for Ys duly accounting for
money received by him. Afterwards without Zs
knowledge, X and Y agree whereby Y is to be paid
by way of commission rather than by way of annual
salary. Z is not liable fore subsequent financial
misconduct of Y.

(b) Release or discharge of the principal debtor

(c) Compounding with or giving time to the
principal debtor

Eg. B owes C a debt guaranteed by A. The debt
becomes payable. C does not sue B for a year after
the debt has become payable. A is not discharged
from the suretyship
(d) Creditors act or omission impairing suretys
eventual remedy
Eg. A puts M as apprentice to B and gives a
guarantee to B for Ms fidelity. B promises on his part
that he will, at least once a month, see M to make up
the cash. B omits to see M as promised and M
embezzles. A is not liable to B on his guarantee.
(e) Loss of security

(f) Invalid guarantee

(g) Lack of essential elements of a valid contract

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