Post Graduate Programme in Management
(PGPM) – IIM Rohtak
1
LEGAL ASPECTS OF BUSINESS
(LAB)
Prof. Parul Gupta
PhD (Faculty of Law-JMI, New Delhi), LL.M., PGDBM
Associate Professor – Business & Corporate Law
Management Development Institute Gurgaon
(MDI)
Dr. Parul Gupta
SESSION 5
2
Void Agreements & Void Contracts
Doctrine of Supervening Impossibility /Doctrine
of Frustration
Void vs. Voidable
Wagering Agreements
Contingent Contracts
Dr. Parul Gupta
VOID CONTRACTS
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Section 2(g)
“An agreement not enforceable by
law is said to be void”
(i) Void ab initio – Void agreements
Section 2(j)
“A Contract which ceases to be enforceable
by law becomes void when it ceases to be
enforceable”
(ii) Void due to the impossibility of its
performance – Void Contracts
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(i) VOID CONTRACTS
4
The Doctrine of Supervening Impossibility
or Frustration
1. Destruction of the object necessary for
performance of the contract.
Case: V.L. Narasu v P.V.S. Iyer
2. Change of law – Outbreak of pandemic/
national emergency
3. Death or personal incapacity
Case: Robinson v Davison
4. Out break of war
5. Non-existence of particular state of things which
forms the basis of the contract
Case: Krell v. Henry
Dr. Parul Gupta
(i) VOID CONTRACTS
5
The Doctrine of Supervening
Impossibility or Frustration
Case 5.1: Sachindra Nath v Gopal
Chandra
Discussion Point
Can the defendant avoid the performance
of the contract being a void contract on
the ground of frustration?
Dr. Parul Gupta
The Doctrine of Supervening
Impossibility
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or Frustration
Judgment &Explanation
It was held that although it was possible that the defendant would not
have paid such a high rent apart from the expectation of deriving
high profits from the British troops yet that was not sufficient to
make out a case of frustration. A situation like this can be
described as one of commercial hardship, which may make the
performance unprofitable or more expensive or dilatory, but is not
sufficient to excuse performance on the ground of frustration. It
does not bring about a fundamentally different situation such as to
frustrate the venture. Hence such cases may not fall within the
purview of Section 56.
Take Away
There is a difference between commercial
difficulty and supervening impossibility
Dr. Parul Gupta
(ii) VOID AGREEMENTS
void–ab-initio
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(iii) Void agreements as per the provisions of Indian
Contract Act, 1872
(1) Any agreement with a bilateral mistake is void: Section 20
(2)Agreements which have unlawful consideration and
objects are void: Section 23 & 24
(3) Agreements made without consideration is void: Section
25
(4) Agreement in restraint of marriage of any major person is
void: Section 26
(5) Agreement in restraint of trade is void: Section 27
(6) An agreement the terms of which are uncertain is void:
Section 29
(7) An agreement contingent upon the happening of an
impossible event is void: Section 36
(8 ) Agreement to do impossible acts is void: Section 56
(9) An agreement by way of wager (betting/gambling) is void:
Section 30
Dr. Parul Gupta
Void Agreements vs. Illegal
Agreement
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All illegal agreements are void
but the opposite is not always
true (i.e. all void agreements
are not always illegal)
Dr. Parul Gupta
VOID AGREEMENTS –
Agreements in Restrain of Trade
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Agreement in restraint of trade is void :
Section 27
Case 5.2: GBCL v CCC
Discussion points
Discuss the legal aspects of Para 14 of the
contract – Was the contract void as it in
restrain of trade?
Dr. Parul Gupta
VOID AGREEMENTS – In Restrain of
Trade
10
Judgment &Explanation
The 1994 agreement could not be considered as substituting
1993 agreement because the purpose of both the
agreements was different. Mutuality for substitution of
agreement requires both consensus ad idem between the
parties and an intention to substitute the original
agreement with the new one. No such intention of the
parties to substitute 1993 agreement could be construed
from 1994 agreement.
So far as the issue of restrain of trade is concerned, in India, a
contract in restraint of trade is one by which a party
restricts his future liberty to carry on his trade, business or
profession in such manner and with such person as he
chooses unless such a restriction is in furtherance or
promotion of trade in which he is presently voluntary
engaged.
Dr. Parul Gupta
RESTITUTION
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Equating the benefit/loss
In Case of Void Contract – Restitution
applies
In case of voidable contracts – Restitution
applies if aggrieved party decides to rescind the
contract
In case of void Agreements – No
Restitution
Contracts with incompetent parties
If an agreement is known to be void etc
In case where amount serves as
Dr. Parul security
Gupta – No Restitution
WAGERING AGREEMENTS
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Section 30
“Agreements by way of wager are void;
and no suit shall be brought for
recovering anything alleged to be won on
any wager, or entrusted to any person to
abide by result of any game or other
uncertain event on which any wager is
made.”
Dr. Parul Gupta
Let Us Discuss
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P and Q debate as to whether it would
rain on a particular day or not P
promising to pay Rs. 1000 to Q if it
rained, and Q promising an equal
amount to P, if it did not.
P agrees to pay Rs. 1000 to Q if Q is able
to score 50 runs in the first match of
interschool cricket tournament
Dr. Parul Gupta
WAGERING AGREEMENTS
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Essentials of Wagering Agreement
(i) Promise to pay money or money’s
worth
(ii) Uncertain event
(iii) Equal chances of gain or loss to
the parties
(iv) Neither party to have control over
the event
(iv) No other interest in the event
Dr. Parul Gupta
Let us Discuss
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Case1
A contracts to pay B Rs. 10,000 if B’s house is burnt.
Case 2
A contract for the sale of goods wherein the seller
agrees to deliver the goods after a week provided
the ship carrying his consignment reaches safely on
time.
Insurance Contracts are classic
examples of Contingent contracts
Dr. Parul Gupta
CONTINGENT CONTRACTS
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Section 31,
“A contingent contract is a contract to do or
not to do something, if some event, collateral
to such contract does or does not happen.”
There should be existence of a contingency;
happening or non-happening of some event in
future.
Contingency must be uncertain.
The event must be collateral, for example
incidental to the contact.
Dr. Parul Gupta
CONTINGENT CONTRACTS
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Rules Regarding Contingent Contracts
(i) Enforcements of contracts contingent on
happening of a future uncertain event (Section
32)
According to Contract formed between A and B, A has to
sell goods to B, if ship comes there safely.
(ii) Enforcement of contracts on the non-
happening of a future uncertain event (Section
33)
A agrees to pay B a sum of money, if a certain ship does
not return. The ship is sunk.
(iii) Contracts contingent on how a person will
act within a fixed time (Section 34)
A agrees to pay B a sum of money, if B supplies ten tons
ofGupta
Dr. Parul olive oil in one week.
CONTINGENT CONTRACTS
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Rules Regarding Contingent Contracts
(iv) Contracts contingent on a specified event
happening within a fixed time (Section 35(1))
There was a contract formed between A and B,
according to which A has to sell goods to B, if the ship
comes back within 10 days.
(vi) Contingent on happening of an impossible
event (Section 36)
if X agrees to pay Y Rs. 10,000 (as a loan), if two
straight lines should enclose a space
Dr. Parul Gupta
Difference Between Wagering
Agreements and Contingent
Contracts
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S. Basis Wagering agreement Contingent Contract
No.
1 Nature It is essentially of contingent It may not be of wagering
nature. nature.
2 Validity It is void. It is valid.
3 Interest in Parties have no other interest The parties have other
subject matter in subject matter other than interest also in the subject
to win or lose. matter.
4 Reciprocal It consist of reciprocal It does not contain
promises promises. reciprocal promises.
5 Future event It is the sole determining It is only collateral to the
factor. contract.
Dr. Parul Gupta
NEXT SESSION
20
Performance of Contract
Discharge of Contract &
Remedies for the Breach of Contract
Dr. Parul Gupta
21
Dr. Parul Gupta
