Module No-5 Void Agreements

Section 23 of the Indian Contract Act.

Section 23 of The Indian Contract Act states that for a contract to be valid, there
must be the legality of object and consideration. The object is the purpose for
which the parties enter into a contract. The fulfillment of the object leads to the
transfer of the consideration agreed from one party to the other.

Lawful Object and Lawful Consideration:-The legality of the object in contract law
stipulates that the consideration and the object of a contract are considered legal
except when:

- They are specifically forbidden by law.

- They are fraudulent in nature.

- The nature of the object and the consideration is such that it defeats the
purpose of the law.

- They involve injury or harm to a person(s) or property.

- Are considered immoral by the court of law.

- Are against public policy.

- Are forbidden by the Law.

Forbidden by the Law:-An object and/or a consideration prohibited by law are

not considered legal and render a contract void. Unlawful consideration of the
object means unlawful acts that are punishable by the law. The acts disallowed by
the appropriate authority by means of their rules and regulations are also
considered for determining the legality. However, if these rules and regulations are
not in proper with the law, they are not applicable. Forbidden by law provision
renders a contract void but all void contracts may not be illegal.

Fraudulent in Nature:-
The object and the consideration of the contract must not be fraudulent then, the
contract will becomes void. For e.g- A enters into a contract with B where he
agrees to pay B if he embezzles(steal) money from C. This is considered a
fraudulent object and the contract is not valid.

Defeats the Purpose of the Law:-

If the purpose of entering into the contract is against any provisions of law, the
contract will be void. The contract is void if:

The object of the contract is to perform an illegal act.

The object of the contract is explicitly (express) or in an implied manner prohibited

by law.

The completion of the contract is impossible without going against the provisions
of the law.

Example - A enters into a contract with B whereby B promises to not pursue legal
proceedings against A if A commits a robbery in B’s house. This contract is
against the provisions of the IPC law.

Involves Injury or Harm to Another Person or Property.

The object of the contract must not cause any destruction to property or cause
injury to another person.

Examples:

Publishing a book on the life of a person without his consent.

Destruction of a property.

Violation of licenses.

Violation of copyrights.

A enters into a contract with B whereby he agrees to pay a sum of money to B if he

destroys a city landmark. This contract does not have a lawful consideration and
lawful object and it is not deemed legal.

Immoral as Per Law:-

An agreement in which consideration or object of which is immoral is void. For
example, an agreement between husband and wife for future separation is void.

Immoral acts are against the reasonable and acceptable general behavior or
personal conduct accepted by society.

Example - A lends money to B on the condition that B will divorce C, and later get
married to A. If B does not divorce C, then A cannot pursue legal proceedings
against B to recover the money. The basic premise of this contract is immoral so it
will be deemed void.

Against the Public Policy:-

A lawful object in business law means that it should not be against public policy.
The purpose of public policy is not to curtail any individual’s rights but to maintain
and protect the general welfare of the community. Following kinds of contract are
considered to be against the public policy:

For example,agreements of trading with foreign enemy, agreement to commit

crime, agreements which interfere with the administration of justice, agreements
which interfere with the course of justice.

Entering into an agreement with a party that belongs to a country with which India
does not have peaceful relations, makes the agreement void.

Restraining from prosecution:- A contract that prohibits a person from pursuing

legal recourse is considered void.

An agreement to indulge in trafficking in public offices.

Agreements to create monopolies.

An agreement to induce judiciary or state officials to act in a corrupt manner and

interferes with legal proceedings.

Section 24 Agreements void, if considerations and objects unlawful in part—

If any part of a single consideration for one or more objects, or any one or any part
of any one of several considerations for a single object, is unlawful, the agreement
is void.
Illustration

A promises to superintend, on behalf of B, a legal manufacturer of indigo, and an

illegal traffic in other articles. B promises to pay to A salary of 10,000 rupees a
year. The agreement is void, the object of A's promise, and the consideration for
B's promise, being in part unlawful.

Section 57 Reciprocal promise to do things legal, and also other things illegal.
—

Where persons reciprocally promise, firstly to do certain things which are legal,
and secondly, under specified circumstances, to do certain other things which are
illegal, the first set of promises is a contract, but the second is a void agreement.

Illustration

A and B agree that A shall sell B a house for 10,000 rupees, but that, if B uses it as
a gambling house, he shall pay A 50,000 rupees for it.

The first set of reciprocal promises, namely, to sell the house and to pay 10,000
rupees for it, is a contract.

The second set is for an unlawful object, namely, that B may use the house as a
gambling house, and is a void agreement.

Section 58- Alternative promise, one branch being illegal—

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

Illustration

A and B agree that A shall pay B 1,000 rupees, for which B shall afterwards
deliver to A either rice or smuggled opium. (afeem)

This is a valid contract to deliver rice, and a void agreement as to the opium.
(afeem)

Section-27. When rescission may be adjudged or refused.— (1) Any person

interested in a contract may sue to have it rescinded(revoke), and such rescission
may be adjudged by the court in any of the following cases,
namely:—

(a) where the contract is voidable or terminable by the plaintiff;

(b) where the contract is unlawful for causes not apparent on its face and the
defendant is more to blame than the plaintiff.

(2) Notwithstanding anything contained in sub-section (1), the court may refuse to
rescind the contract—

(a) where the plaintiff has expressly or impliedly ratified the contract; or

(b) where, owing to the change of circumstances which has taken place since the
making of the contract (not being due to any act of the defendant himself), the
parties cannot be substantially restored to the position in which they stood when
the contract was made; or

(c) where third parties have, during the subsistence of the contract, acquired rights
in good faith without notice and for value; or

(d) where only a part of the contract is sought to be rescinded and such part is not
severable from the rest of the contract.

Agreements are making with a common object for the benefit of both all the parties
involved in the agreement. But sometimes the agreements are making for the
benefit of only one party or it may be made with partial unlawful object. It may
also be made without consideration to benefit only one party. It may be to protect
personal interest or for the interest of few persons in the agreement. These kinds of
agreements are not valid in the eyes of law. All the conditions for a valid
agreement mentioned in the Indian Contract Act 1872 must be satisfied for legal
validity of an agreement. Other agreements are void either partly or fully. The
following are the legal provisions related to void agreements in the Indian Contact
Act, 1872.

As per Section 26 of Indian Contract Act 1872 agreement in restraint of marriage

other than a minor is void. Under section 26 of the Indian contract act, agreements
which are made in order to restrain someone from marrying other than a minor are
not valid, i.e., void. The main idea which made this section was that marrying
someone of their own choice is a basic right of every individual and it should not
be snatched away. Therefore, any agreement which prohibits someone from
marrying another person of his own choice will come under the restraint of
marriage.

As per Section 27 of Indian Contract Act, 1872 every agreement by which anyone
is restrained from exercising a lawful profession, trade or business of any kind, is
to that extent void. Under section 27 of the Indian Contract Act, a contract between
two persons shall not bound a person from not practising or starting his own trade
or profession for some consideration. Therefore, a person restraining someone to
practice a trade or profession for his own benefit, or restraining him to trade in a
particular way for his own benefit will come under restraint of trade.

Conditions that make restraint of trade valid

There are certain conditions that make a restraint on trade during a sale of goodwill
valid, these are:

The seller can be restrained only from carrying out a similar business.

The restraint can be applied only to certain local limits.

The limits/restraint should appear to be reasonable.

As per Section 28 of Indian Contract Act, 1872 agreements in restrain of legal

proceedings, void

Every agreement, by which any party thereto is restricted absolutely from

enforcing his rights under or in respect of any contract, by the usual legal
proceedings in the ordinary tribunals, or which limits the time within which he
may thus enforce his rights, is void to the extent. Under section 28 of the Indian
contract act, agreements that restrain either one or both of the parties from going to
the courts are not valid or void. When a contract debars a party to the contract from
going to the appropriate courts or tribunals or which limits the time to approach a
court is void and it comes under agreements in restraint of legal proceedings.

An uncertain agreement of which meaning is not certain is also void as per Section
29 of the Indian Contract Act, 1872. An agreement under Section 29 of the Indian
Contract Act, 1872 is void when its terms are ambiguous and uncertain, thus it
cannot be made clear. For instance: X agrees to trade a ton of oil. This agreement
is unenforceable for uncertainty as it is uncertain because classification intended
cannot be ascertaine

As per section 30 of Indian Contract Act 1872, 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 the result of any game or other uncertain
event on which may wager is made.

In the case of Carlill v. Carbolic smoke Ball Co., the defendants assured to pay
100 pounds to anyone who got influenza after using the smoke ball manufactured
by them. It was believed not to be a hazard because the user could not miss or lose
anything if he failed to grippe influenza. The essential features to be noted here is
that there should be a fair chance of gain or loss to the individuals and it should be
about an uncertain event. The most prominent feature of the wager is that each
party has the chance of winning or losing.

Section 56 of ICA

When parties enter into a contract, there is a general assumption that they would
want to fulfill their contractual obligations and complete the conditions of the
contract, hence, they have entered into a legally binding agreement but there might
be circumstances that would lead to this fulfillment of contractual obligations to be
impossible or impractical. When these circumstances are out of the control of the
parties and when they render the contract to be impossible to fulfill, such a contract
is said to be frustrated. Frustration is an umbrella term which covers all the
possible circumstances which might lead to fulfillment of the contractual
obligation to be impossible or impractical.

The reason why ‘the doctrine of frustration’ holds an important place in law as it
provides a mechanism to deal with such unpredictable and unfortunate
circumstances which lead to a contract being frustrated. Considering the binding
nature of contracts and the consequences it leads to when a party does not fulfill
his/her contractual obligations ‘The doctrine of frustration’ provides a just
mechanism for the parties to protect them from paying damages in cases where
events transpire which were unpredictable and out of their control. Unlike most
common law countries, ‘the doctrine of frustration’ has not been developed by just
years of jurisprudence; it is explicitly incorporated in Indian law under Section 56
of The Indian Contract Act, 1872.

In the case of Taylor vs. Cardwell. In this particular case, an opera house was
destroyed due to an accidental fire and consequently was not able to hold the
performance of the opera, the plaintiff (a buyer of the ticket for the opera) sued the
defendant for breach of contract. However, it was held that the defendant is not
liable to pay the damages as the very object on which the entire fulfillment of the
contract was based was destroyed by no fault of either party hence it was held that
the parties were discharged of their contractual obligations.

VARIOUS GROUNDS FOR VOIDABILITY:

Several grounds for the voidability of an agreement under the Indian Contract Act
of 1872 include:

Coercion (Section 15): If an agreement is obtained through coercion, such as

committing or threatening to commit a prohibited act or unlawfully detaining
property, the agreement may be voidable at the discretion of the coerced party.

Undue Influence (Section 16): A contract is voidable if one party utilizes their
position to gain an undue advantage over the other. This might include
relationships based on trust, confidence, or dependency.

Fraud (Section 17): If a party wilfully deceives or conceals significant information

to encourage another party to engage into the agreement, the contract may be
voidable at the aggrieved party’s discretion.

Misrepresentation (Section 18): refers to a false statement of fact made by one

party to induce the other to engage into a contract. If the falsified statement is
material and causes the contract, it may render the contract invalid.

Mistakes (Sections 20 and 21): can invalidate a contract if both parties make a
factual or legal error that is critical to the agreement. However, if the error is
unilateral or known by the other party, the contract may not be voidable.
Agreements without Free Consent (Section 19): states that any agreement without
the parties’ voluntary consent is voidable. Free consent indicates that the
permission was gained without force, undue influence, fraud, deception, or error.

Agreements in Restraint of Marriage (Section 26): Marriage Restraint Agreements

(Section 26) are invalid. However, agreements restricting the right to marry to a
fair extent may be acceptable.

Agreements in Restraint of Trade (Section 27): Section 27 prohibits unjustified

impediments on commerce. Agreements that are reasonable and essential to
preserve the parties’ interests may be lawful. These reasons give legal redress for
parties who entered into agreements under circumstances that invalidate the
contract’s consent or fairness.
CONSEQUENCES/EFFECT OF VOID AGREEMENTS:

(A)Nullity of Contracts:

When an agreement is deemed invalid, it is regarded null and void from the start,
which means it is handled as if it never occurred. The contract has no legal effect
from the start, and neither party is obligated to complete their commitments under
agreement.

Implications: The parties are released of their contractual responsibilities.

Any activities made under the void agreement are considered invalid. Parties may
pursue legal action to recover any losses incurred as a result of the invalid
agreement.

Example: If a contract is void owing to illegality, such as an agreement to

participate in unlawful activities, neither party may enforce the conditions, and any
money or products transferred must be refunded.

(B) Restitution and Remedies:

When a contract is deemed unlawful, the parties may be entitled to restitution,

which entails returning them to their pre-contractual positions. This might involve
repaying any benefits or payment obtained under the invalid agreement.
Depending on the circumstances, parties may seek further remedies, such as
damages or specific performance, as appropriate.

Example: If one party paid money to the other under an invalid contract, restitution
may include repayingthe cash to the paying party in order to restore them to their
previous financial position.

(C)Impact on Parties Involved:

Description: Void agreements can have serious consequences for the persons
concerned, altering their rights, duties, and financial situations.

Implications: Parties may face damages or lose advantages from the defective
agreement. The parties’ reputation and trustworthiness may suffer, especially if the
invalid agreement includes unlawful or immoral behaviour. Void agreements may
result in legal challenges and litigation to address concerns raised by the
agreement’s nullity.

Example: If a contract for the sale of goods is found void owing to fraud, the buyer
may lose the money paid for the items, while the seller may face legal
consequences for their fraudulent activities.