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.
FAQs on Expressly Void Agreements: Examples and Implications
1. What is an expressly void agreement as defined by the Indian Contract Act, 1872?
An expressly void agreement is one that the Indian Contract Act, 1872, specifically declares to be unenforceable in a court of law. These agreements are considered void ab initio, which means they are invalid from the very beginning. Unlike other contracts that might become void later, these are never legally valid because their subject matter is against established law or public policy.
2. What are the most common examples of agreements that are expressly declared to be void?
The Indian Contract Act, 1872, provides a clear list of agreements that are expressly void. Key examples include:
- Agreements made with a person incompetent to contract (e.g., a minor).
- Agreements where the consideration or object is unlawful.
- Agreements made under a mutual mistake of fact.
- Agreements that are in restraint of marriage.
- Agreements that are in restraint of trade.
- Agreements in restraint of legal proceedings.
- Wagering agreements (betting contracts).
- Agreements to do an impossible act.
3. What are the legal implications or consequences if an agreement is declared void?
The primary implication of a void agreement is that it has no legal effect whatsoever. This means neither party can sue the other to enforce the agreement or to claim damages for its non-performance. Legally, it is treated as if it never existed. If any party has received a benefit or payment under such an agreement, they may be required to restore it to the other party under the principle of restitution.
4. How is a void agreement different from a voidable contract?
The main difference lies in validity and enforceability. A void agreement is invalid from the start and cannot be enforced by any party. A voidable contract, however, is a valid contract that can be enforced, but one of the parties holds the option to either uphold it or cancel it. This option typically arises due to factors like coercion, undue influence, fraud, or misrepresentation affecting one party's consent.
5. Why does the law consider agreements in restraint of trade or marriage to be void?
The law declares these agreements void on the grounds of public policy, as they are seen as harmful to society's interests.
- Restraint of Trade: Such agreements are void because they discourage competition and restrict an individual's fundamental right to practice a lawful profession or business. This stifles economic freedom.
- Restraint of Marriage: These are void because marriage is considered a fundamental personal right and a social institution. An agreement preventing an adult from marrying is viewed as a violation of personal liberty.
6. Are there any business situations where an agreement in restraint of trade is considered a valid exception?
Yes, there are statutory exceptions. The most common example is the sale of goodwill. When a person sells their business along with its goodwill, they can agree with the buyer not to carry on a similar business. This restriction is valid provided it is reasonable in terms of duration, scope, and geographical limits, as it protects the buyer's investment in the goodwill they purchased.
7. If money has been paid under a wagering agreement (e.g., a bet), can the winner sue to recover the amount?
No, the winner cannot sue to recover the amount. A wagering agreement is expressly void. While the contract itself is void, any collateral transaction related to it is not necessarily void. However, in states like Maharashtra and Gujarat, even these collateral agreements are considered illegal, meaning no legal action can be taken to recover money related to the wager in any form.
8. How does a void wagering agreement differ from a legitimate insurance contract?
The key difference is the presence of an insurable interest. In an insurance contract, the policyholder has a genuine financial interest in the person or property being insured and seeks to protect against a real risk of loss. In a wagering agreement, neither party has any interest in the event's outcome other than the stake money itself. An insurance contract is a contract of indemnity, while a wager is purely a speculative game of chance.
