There are some agreements which have been specifically declared as void by the Indian Contract Act. According to section 2(g)-"an agreement not enforceable by law is said to be void." The agreements which have been declared void by the Act are as follows:-
(1) Agreements of which consideration and objects are unlawful in part (section 24);
(2) Agreements without consideration (section 25);
(3) Agreements in restraint of marriage (section 26);
(4) Agreement in restraint of trade (section 27);
(5) Agreement in restraint of legal proceedings (section 28);
(6) Agreement void for uncertainty (section 29);
(7) Agreement by way of wager (section 30);
(8) Agreement to do an Impossible Act (section 56).
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, 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.
When there are two sets of distinct promises and when the void part of the contract can be properly separated from the rest the latter does not become valid.
Alice Nary Hill v. William Clarke, (1905) ILR 27 All 266: The plaintiff, a married woman agreed to live in adultery with the defendant and also agreed to pay the plaintiff a single consolidated remuneration of Rs. 50 per month. It was held that because the lawful part of the contract could not be secured from the unlawful one, the whole of the agreement was void and the plaintiff could not recover anything even for her services as a housekeeper.
Willes J.: Observed that where you cannot sever the illegal from the legal part of a covenant the contract is altogether void, but where you can sever them whether the illegality be created by statute or by common law, you may reject the bad part and retain the good.
Suryanarayan Murthi v. P. Krishna Murthy, AIR 1957 Ori 125: An agreement between co-widows that if any of them remarried she should forfeit her right to her share in the deceased husband's property is not in restraint of marriage.
Rao Rani v. Gulab Rani, AIR 1942 All 351: Same as above section 26 is based on the public policy. The institution of marriage has social, family, religious and spiritual importance.
Exception 1: Saving of agreement not to carryon business of which goodwill is sold.-One who sells the goodwill of a business may agree with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer, or any person deriving title to the goodwill from him, carries on a like business therein, provided that such limits appear to the Court reasonable, regard being had to the nature of the business."
This section seeks to ensure effective exercise of one's right to carryon any lawful profession, trade or any kind of business without any restraint thereon. The principle on which this section is based is in consonance with Article 19 of the Constitution of India under which every citizen has a right to practice any profession or to carryon any profession or to carryon any occupation, trade or business. An agreement will be void under section 27, if the following conditions are satisfied-
(i) there must be an agreement by which one is restrained from carrying on a profession, trade, business of any kind.
(ii) Profession, trade, business sought to be restricted must be lawful.
(iii) The restriction sought to be imposed do not cover any exceptions under section 27 or any other exception recognised under any existing law.
Madhub Chander v. Raj Coomar Dass, (1874) 14 BLR 76: A and B carried on the same kind of business in the same locality in Calcutta. B agreed to pay some amount to A if A closed the business in that locality. A closed his business and then brought an action against B to recover the promised amount. It was held that even though the restriction was merely partial one restraining A from carrying on a particular business only in a certain locality it was still void being in restraint of trade, and, therefore, A was not entitled to recover the amount.
Zaheer Khan v. Percept D'Mark (India) Pvt. Ltd., MANU/MH/1576/2003 : AIR 2004 Bom 362: A contract restricting a party to a contract, her future liberty to carryon his affair in the manner he liked and with person he choose, would be a contract in restrain of trade.
Exceptions: (1) Sale of Goodwill.-Section 27 recognises one exception regarding the restraint upon a person who sells the goodwill of a business, however, to certain conditions-
(i) restrain must be within specified local limits,
(ii) restraint must be for the period as long as the buyer or any person deriving title carries on the business.
(iii) limits of restraint must appear to the court reasonable regard to the nature of the business.
State of Rajasthan v. Bundi Electric Supply Co. Ltd., MANU/RH/0007/1970 : AIR 1970 Raj 36: The Indian Contract Act does not define the word 'goodwill' but in its legal sense the word 'goodwill' means every affirmative advantage as contrasted with negative advantage that has been acquired its carrying on the business.
According to Lord Eldon-The goodwill which has been the subject of sale is nothing more than the probability that the old customer will resort to old place.
Parasullah Malik v. Chandrakanta Das, 39 Ind Cas 177: The plaintiff and the defendant were carrying on the business as carriers of passengers by boats. The plaintiff sold his business to the defendant for a sum of money and agreed to abstain from carrying on a boat business there for a period of three years.
Lord Haldane said their Lordships entertain no doubt that what took place was the sale of goodwill.
The seller can only be restrained from carrying on a similar business and also only for such period for which the business sold is actually carried on either by the buyer or by any person deriving title to the goodwill from him.
Section 36: Provides that a partner may make an agreement with the partners that or ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits.
Section 54: Provides that the similar agreement may be made by partner upon or in anticipation of dissolution by which they may restrain each other from carrying on a business similar to that of the firm.
Section 55(3) provides that any partner may upon the sale of the goodwill of a firm.
Charlesworth v. McDonald, ILR (1898) 23 Bom 103: The defendant agreed to serve as an assistant to the plaintiff, a physician and a surgeon at Zanzibar, for a period of three years and not to practice himself during that period. After one year, he left the plaintiff's service and started his own practice in Zanzibar. It was held that the plaintiff was entitled to restrain the defendant from practicing during the period of agreement in Zanzibar.
Deshpande v. Arvind Mills Ltd., MANU/MH/0080/1945 : AIR 1946 Bom 423: An employee entered into an agreement to serve as a weaving master for a period of three years. The agreement contained a stipulation that he would not serve anyone else in India during that period. He left service after one year and started serving as a weaving master in another mill. Holding the agreement reasonable, the court issued the injunction to restrain him from serving as weaving master anywhere else during the unexpired period of the agreement.
Gujarat Bottling Co. Ltd. v. Coca Cola Company, MANU/SC/0472/1995 : AIR 1995 SC 2372: The Supreme Court observed 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 and applies in respect of a restriction which operates after the termination of the contract.
S.B. Frazer & Co. v. Bombay Ice Manufacturing Co., (1904) 29 ILR Bom 107: An agreement between certain ice-manufactures fixed the minimum price for sale of ice, the proportion of the manufacturer which each was to bear and of profits which each was to receive. Some of them restrained from selling at Poona and some others at steamers.
The agreement was valid as it is regulatory and not to restrain it.
(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceeding in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or
(b) which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights is void to that extent.
Exception 1.-Saving of contract to refer to arbitration dispute that may arise.-This section will not render illegal a contract, by which two or more persons agree that may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred.
Exception 2.-Saving of contract to refer questions that have already arisen.-Nor shall this section render illegal any contract in writing, by which two or more persons agreed to refer to arbitration any question between them which has already arisen or affect any provision of any law in force for the time being as to references to arbitration.
Food Corporation of India v. New India Assurance Co. Ltd., MANU/SC/0437/1994 : AIR 1994 SC 1889: The clause in the agreement that the appellant would not have any right under the bond after the expiry of six months from the date of the termination of the contract has been held not to be contrary to section 28 of the Act nor it imposed any restriction to file a suit within six months.
Patel Roadways v. Prasad Trading Company, MANU/SC/0280/1992 : AIR 1992 SC 1514: It has been held that it is not open to the parties by agreement to confer jurisdiction on any court which it did not otherwise possess under section 20 of Code of Civil Procedure.
Delhi Bottling Co. Ltd. v. Times Guaranty Financial Ltd., AIR 2003 (NOC) 7 (Del): It has been held that when two courts have jurisdiction parties are free to vest jurisdiction in one of those courts only.
In this case, there was a hire-purchase agreement in respect of supply of commercial vehicles. The agreement was executed in Bombay. An agreement in such a case by the parties that in case of any dispute Bombay Courts shall have exclusive jurisdiction. The agreement was held to be valid and not hit by
section 28 of the Contract Act.
Illustrations
(a) A agrees to sell B "a hundred tons of oil". There is something whatever to show what kind of oil was intended. The agreement is void for uncertainty.
(b) A agrees to sell B one hundred tons of oil of a specified description known as an article of commerce. There is no uncertainty here to make the agreement void.
(c) A, who is a dealer in coconut oil only, agrees to sell to B "one hundred tons of oil". The nature of A's trade affords an indication of the meaning of the words, and A has entered into a contract for the sale of one hundred tons of coconut oil.
(d) A agrees to sell to B "my white horse for rupees five hundred or rupees one thousand. There is nothing to show which of the two prices was to be given. The agreement is void.
Chandra Shekhar v. Gopi Nath, MANU/UP/0071/1963 : AIR 1963 All 248: The agreement provided that the tenant is to construct a sitting place and install a new gate and deduct the cost from rent which was enhanced. The cost of the construction was not known to the parties at the time but it is obvious that they agreed that the entire cost would be adjusted against rent.
The agreement was capable of being made certain. It is a valid agreement.
Carlill v. Carbolic Smoke Ball Co., (1892) 2 QB 484: Hawkins J. observed that A wagering contract is one by which two persons professing to hold opposite views touching the issue of a future uncertain event, mutually agree that dependant upon the determination of that event, or shall win from the other, and that other shall pay or hand over to him, a sum of money on other stakes, neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of parties.
(i) The parties have opposite views regarding an uncertain event
(ii) There are chances of gain or loss to the parties on the determination of the event one way or the other.
(iii) The parties have no other interest except winning or loosing of bet.
(1) Uncertain event.-According to Anson-An event may be uncertain not only because it is future event, but because it is not yet ascertained at any rate to the knowledge of the parties. Cheshire and Fifoot-Its limitation to a future uncertain event is incorrect, for a wager is nonetheless a wager though it concerns a past or present fact or event.
(2) Mutual Chance of gain or loss.-There should be a chance of anyone party winning and the other closing on the determination of the event one way or the other. If there is no such mutual chance of gain or loss, there is not wager.
Babasaheb v. Rajaram, AIR 1931 Bom 264: It has been held that if out of the gate money which has been recovered, the payment is to be made only to the winner of a certain game, it is not a wagering contract because each party has a chance of winning something but no chance of losing anything.
Diggle v. Hige, (1877) 2 Ex D 422: Each one of the two parties in a walking match deposited œ 200 with a stakeholder with the condition that the loser would forfeit the amount of œ 200 paid by him. The agreement was held to be a wagering one.
(3) Neither party to have contract over the event.-If either party to a contract, under which money is payable upon the determination of an uncertain event possesses an interest in the subject-matter of the contract that will be affected in value according to the determination of the event, the contract is not void as being a wager.
(4) No other interest in the event.-Neither party should have any interest in the happening of the event other than the sum as stake he will win or lose. The object of the wager is to make a gain purely as the decision of an uncertain event. One party backs his knowledge skill, or luck against that of the other, and in a true wager this is the whole transaction.
Lotteries are prohibited under the Indian Penal Code unless authorised by the Government. Thus a lottery authorized by the Government is not illegal.
(1) agreements by way of wager are void.
(2) no suit shall be brought for recovering anything to be won on any wager, or
(3) Entrusted to any person to abide the result of any game on other uncertain event on which any wager is made.
(1) Horse Race.-The section does not render void a subscription as contribution, or an agreement to subscribe or contribute, toward any plate, prize or sum of money of the value or amount of five hundred rupees or upwards to the winner or winners of any horse race.
(2) Crossword Competitions.-If skill pays a substantial part in the result and prizes are awarded according to the merits of the solution competition is not a lottery.
Subhas Kumar Manwani v. State of Madhya Pradesh, MANU/MP/0029/2000 : AIR 2000 MP 109: To treat an agreement by way of wager as void is that the law discourages people to enter into games of chance and make earning by trying their luck instead of spending their time, energy and labour for more fruitful and useful work for themselves, their family and the society.
Narayana Ayyangar v. K.V. Ambalam, (1927) ILR 50 Mad 696: A chit-fund does not comes within the scope of wager.
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