Expressly Void Agreements

About Expressly Void Agreements

An agreement prohibiting someone from engaging in a trade, practising a legal profession, or engaging in any type of business is expressly void. A person's constitutional rights are violated by such an arrangement.


A valid contract must follow certain requirements and one of the most important requirements is that the contracts must not be void. Let’s start by explaining what a void contract is. Section 10 of the Indian Contract Act defines a void contract as ‘a contact that cannot be enforced by law.’ Any contract that is not legally enforceable is a void contract. 


There is, however, a difference between void contracts and void agreements. A void agreement is void ab-initio that means it is void from the start but a void contract is valid at the time of entering into a contract but becomes void or non-enforceable subsequently.


There are several types of void agreements and some of them are expressly declared void agreements. Such agreements are considered void by law. Expressively void agreements are considered harmful to the society as they are deemed to be against the public policy. Such agreements are expressly declared void under section 26-28 of the Indian Contract Act.


Agreements in Restraint of Trade - Section 27

Section 27 of the Act makes agreements that obstruct commerce unenforceable. In other words, any agreement that forbids a person from starting or continuing a business or profession in exchange for monetary compensation is null and void. As a result, a trade constraint agreement is defined as any agreement that forbids a person from conducting business in the manner or location of his choosing, based on an agreement with another party in which the other party benefits from him giving up his trade or profession.


Agreements that Prevent a Person(s) From 

  • Practising a trade

  • Pursuing a legal profession

  • Undertaking a business of any kind 


Such agreements are deemed expressly void agreements as they are against the constitutional right of an individual to practice a trade of his choice. An agreement where a person agrees to not pursue a trade or profession for consideration is also deemed expressly void. All agreements in restraint of trade are void pro tanto but they are void agreements and not invalid agreements. This means that it is legal to enter into such agreements but they will not be enforceable by law if one or all the parties fail to fulfil the agreement


Case Law

The plaintiff and defendant in Madhub Chander v. Raj Coomar, (1874) 14 Beng LR 76, had a similar business in the same Calcutta neighbourhood. The plaintiff and the defendant agreed that if the defendant shuts down his business in that area, he will pay him a particular sum. The plaintiff shut down his business in that area, but the defendant refused to pay the debt. He was sued by the plaintiff. Because it is a case of complete restraint of commerce, the court ruled that the agreement between the two parties is void and unenforceable.

 

Exceptions for this Section

  • Sale of Goodwill

  • Exceptions under the Indian Partnership Act

  • Restraint by a contract of service

  • Trade combinations

  • Solus agreement


However, there are two exceptions to this law:

  • Sale of Goodwill- If a person sells his goodwill along with the business, then the buyer can restrain the seller from practising the same business within local limits. Such an agreement will be deemed valid and it is an agreement not expressly declared void.

  • Sale of Partnership- A partner exiting a partnership firm can enter into a restraint of trade agreement with the firm. It is an agreement not expressly declared void and will be considered valid. An agreement between the partners of a firm to not carry out a trade of their own, similar to the trade of the firm, is also a valid agreement. 


Agreement in Restraint of Legal Proceedings - Section 28

Any agreement between the two parties that forbids one or both of them from bringing the contract to court if the other fails to comply is null and void. Any agreement that precludes or inhibits an aggrieved party from seeking redress in a relevant court or tribunal in the event of a breach of contract is null and unenforceable, as per Section 28 of the Indian Contract Act. Any agreement that extinguishes a party's rights or free either party from liability is null and void, according to the law.


Agreements that prevent a party from enforcing his legal rights under an agreement through the legal process in a court of law or through arbitration are expressly declared void agreements.


In short, all agreements are void, if:

  • They render it invalid, by agreement, for a party to approach a relevant court or tribunal if the parties’ rights have been violated.

  • Limit the time within which the aggrieved party can approach such a court or tribunal.

  • Make a party immune from liability by agreement.

 

Case Law Free PDF 

The Supreme Court held in Food Corporation of India v. New India Assurance Co.Ltd. that it was clear from the agreement that it did not contain any clause that was found to be contrary to Section 28 of the Contract Act because it did not impose any restriction on filing a suit within six months of the date of contract termination as claimed by the insurance company, but what was agreed was that after the contract was terminated, the parties would file a suit with the court.

 

Exceptions

  • Saving of a contract to refer to an arbitration dispute that may arise

  • Saving of a contract to refer to questions that have already arisen

  • Saving of a bank or financial institution's guarantee agreement


Agreements that are in Restraint of Marriage - Section 26

Under section 26 of the Indian Contract Act, all agreements in restraint of marriage are deemed to be expressly void agreements, unless they involve a minor. Entering into an agreement that prevents party/parties from getting married or restraining marriage is not enforceable by law and hence it is expressly void. The provision aims at protecting the right of every individual to enter into a marital relationship. This provision however does not apply to agreements that involve minors. 


If an adult agrees to not enter into marriage in lieu of consideration, it is an agreement expressly declared void. 


Example: A agrees with B, stating that B will not marry C. Such an agreement will be deemed void.


A agrees to not marry B if C agrees to pay him a certain amount. Such an agreement is considered expressly void.


Case Law: Shrawan Kumar vs Nirmala

In this case, the plaintiff contended that the defendant had promised to marry him, but married someone else instead. He asked for an injunction of her marriage with the other person. The case was decided against the plaintiff as the agreement was considered void.

Book your Free Demo session
Get a flavour of LIVE classes here at Vedantu
FAQs (Frequently Asked Questions)

1. What are the Exceptions to the Restraint to Trade in the Case of the Sale of Goodwill?

An agreement that restrains a person from practising business in case of sale of goodwill is deemed a valid agreement. In the case of the sale of goodwill, there are certain conditions that make an agreement for restraint on trade valid. These include:

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

  • The restraint applies only to certain local limits.

  • The limits/restraint should be reasonable.

2. What happens in the Case of an Agreement with an Uncertain Meaning?

An agreement whose meaning is uncertain is deemed to be a void agreement. Such an agreement becomes valid when the element of uncertainty is removed or clarified. 


Example: A agrees to sell 1000 kg of wood to B. The agreement does not specify the type of wood to be sold and that makes the agreement uncertain and thus void.

3. Is Wagering Agreement an Example of Expressly Void Agreement?

In a wagering agreement, a wager is placed on the happening or the non-happening of an event. A wagering agreement must follow certain conditions to be considered void. 

  • It must include a promise to pay money or money’s worth to a party/parties

  • The event specified in the agreement must be uncertain with no control of either party over it

  • It must be the common intention of all the parties to wager at the time of making the agreement

  • Parties should have no other interest in the agreement other than the stake of the wager


However, the following agreements are not considered as wagering agreements:

  • Share market transactions

  • Chit fund

  • Athletic competitions and any other competitions involving skills

  • Insurance contracts

4. A sells his well-known fast-food franchise to B. Question 1: As part of the deal, A has committed not to open another restaurant for the next 15 years. Is this a legally enforceable contract?

This is, in fact, a legally enforceable agreement. An acceptable set of conditions should be included in a trade restraint agreement. Despite the fact that 15 years is a long time, the terms are reasonable because the restaurant was well-known and the sale price would be substantial. As a result, this contract will not be among the void ones.

5. What is a Sale of a Goodwill?

A company's goodwill is an intangible asset, meaning it exists but isn't material or physical. It mainly refers to the firm's social standing or reputation. Brand value, employee morale, reputation, and consumer benefit are all examples of goodwill. It is a valuable asset since a consumer is likely to interact with the same positive firm with which he previously dealt due to its name and reputation. This is why a company's goodwill is valuable.

6. Are void agreements always illegal?

'All illegal agreements are void, but not all void agreements are necessarily illegal,' says the author. An agreement's goal or consideration may not be illegal, yet it may nonetheless be void. A contract with a juvenile, for example, is void in his favour but not illegal.

7. What are the ways in which an Offer can be Terminated?

The term "termination of offer" refers to the act of terminating an offer. That is, no further action on the offer can be done. Under commercial law, a contract can be terminated if the following requirements are met:

  • By Rejection

  • Death of Either Party Before Acceptance

  • By Revocation

  • By the Lapse of Time

  • In the Event of the Occurrence of a Specific Condition

  • Either party's legal capacity is revoked

8. On Vedantu, where can Commerce students learn about Agreements Without Consideration?

Students can get Important Commerce Topics and Study Materials for classes 11 and 12 can get thorough information on topics like Agreement Without Consideration and many more on Vedantu, which has a chapter-by-chapter analysis. The specific answers are prepared by subject experts. Commerce textbook solutions for classes 11 and 12 are available in PDF format for students to download for free.

Comment