Void Agreements in Business

Definition: A void agreement is not enforceable by law [Sec 2(g)]. It has no legal existence or sanctity.

Types of void agreements:

Various sections a spread over in the Indian Contract Act enumerate different types of void agreements. The following kinds of agreements are expressly declared to be void.

1. Agreements made by an incompetent person, for example a minor person or of unsound mind, etc (Sec 11).
2. Agreement made under mutual mistake as to matter of act essential to the agreement (Sec 20)
3. Agreement made under mistake as to a law not in force in India ( Sec 21)
4. Agreement, the consideration or object of which is unlawful (Sec.23)
5. Agreement, the consideration or object of which is unlawful in part (Sec 24)
6. Agreement made without consideration (Sec 25)
7. Agreement in restraint of marriage (Sec 26)
8. Agreement in restraint of trade
9. Agreement in restraint of legal proceedings
10. Agreement, the meaning of which is uncertain
11. Agreement by way of wager
12. Agreement contingent on an uncertain future event becomes impossible (Sec 32)
13. Agreement contingent on an impossible event (Sec 36)
14. Agreement to do an impossible act (Sec 56)
15. Agreement to do an act which subsequently becomes impossible (Sec 56)

Agreement in restraint of marriage:

Every agreement in restraint of the marriage of any person, other than a minor is void (Sec 26). Every person has a right to get married and that too has a right to exercise his choice. Any restraint or interference with the freedom of choice in marriage is illegal However, this does not apply to a minor who can be restrained till he attains majority.

In English law, a partial restraint on marriage is tolerable if it is reasonable. In Indian law even partial restraint is not permissible.

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 (Sec 27).

The object of enacting this section is to encourage free trade. Every individual is free to carry on any lawful trade at any place of his choice. Every man shall be at liberty to work for himself and shall not be at liberty to deprive himself of the State of his labor, skill or talent by any contract that he enters into. Therefore, any restraint or restriction, interfering in the exercise of his lawful profession, trade or business is to that extent void. Agreements in restraint of trade are contrary to the public policy and therefore void. In Carew Co Ltd. v North Bengal etc (6 DLF Cal 75) where two sugar manufacturers had entered into an agreement allocating zones to procure sugar for meeting the needs of their respective factories and each of the manufacturers under took not to draw any cane from the zones allotted to the other factory, it was held that the agreement was in restraint to trade and therefore void.

In Gujarat Bottling Co Ltd v Coca Cola Company (AIR 1995 SC 2372), it has been held that except in cases where the contract is wholly one sided, normally the doctrine of restraint of trade is not attracted in cases where the restriction is to operate during the period the contract is subsisting. It applies in respect of a restriction which operates after the termination of the contract.

Where an agreement is divisible, the part in restraint of trade is void while the part which is not in restraint of trade will be valid. Where however, the agreement cannot be divisible the whole agreement is void.

In England a partial restraint of trade is allowable if reasonable and not opposed to public interest. Restraint imposed must be reasonable in the interest of the parties and the public. However, in India even partial restraint is void.

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