Void Contracts Business Law www.assignmentpoint.com
Void contracts An agreement can be void for unlawful agreement , unlawful consideration , lack of consideration, lack of capacity , mutual mistakes ……. An agreement not enforceable by law is said to be void When a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it. Contracts may be illegal if the performance involves violation of civil law unlawful or a if it is a criminal act , or even if the performance is deemed by the courts to be contrary to the interests of the public. www.assignmentpoint.com
Legality of object and consideration An agreement will not be enforced by the court if its object or the consideration is unlawful . www.assignmentpoint.com
Unlawful consideration and object If it is forbidden by law- criminal act Bhole, a prominent businessman, enters into an agreement with Kallu, a paid killer, to assassinate Shankar, a business rival for the sum of Rs. Two lakhs. Kallubhai finishes the job but Bhole refuses to pay the money. Can Kallu then go to court and claim breach of contract? No. Murder is an offence and is, therefore, forbidden by law. Here, the object of the agreement is unlawful and hence it would be invalid. www.assignmentpoint.com
Unlawful consideration and object 2. If it is such a nature that if permitted , it would defeat the provision of any law – pay less tax The Payment of Minimum Wages Act specify the minimum amount that a worker must be paid. Any agreement, between an employer and his employee, stating that the employee agrees to receive less than the statutory minimum, would be invalid. This is because such an agreement would defeat the purpose of a law, in force www.assignmentpoint.com
Unlawful consideration and object 3. If it is fraudulent Two men formulate a plan to fraudulently acquire a sum of money from a certain Mr. X. They agree amongst themselves to split up, equally, whatever they obtain in this manner. Again, this agreement would not be valid because the consideration is fraudulent www.assignmentpoint.com
Unlawful consideration and object 4. If it involves or implies injury to the person or property of another A trustee enters into an agreement with a person to sell the property, held in trust, which he is not authorized to do. Such an agreement would be invalid because it would involve injury or harm to the beneficiary'‘ s right to property. Thus, an agreement is void when it involves or implies injury to a third person or his property. www.assignmentpoint.com
Unlawful consideration and object 5 If the court regard it as immoral – renting house for immoral purpose Hiring taxi for immoral purpose www.assignmentpoint.com
Unlawful consideration and object If the court regards it as opposed to public policy Trading with enemy All trades with public enemies without a license from the government are unlawful. It is now fully established that trading with an alien enemy (i.e. a citizen of the other country at war with the state) is against public policy in so far as it tends to aid the economy of the enemy country. Such agreement is illegal. www.assignmentpoint.com
Opposed to public policy 2. Agreement interfering with the course of justice An agreement not to disclose misconduct to the other interested party or an agreement to influence a judge to induce him to decide the case in a party’s favor, is obviously opposed to the public policy and is void. 3. Traffic in public offices Agreements for sale or transfer of Public Offices or for appointments for Public Offices in consideration of money are illegal, being opposed to public policy. Such agreements, if enforced, would lead to inefficiency and corruption in public life. www.assignmentpoint.com
Opposed to public policy 4. Agreement creating an interest opposed to duty a) An agreement is not to report in newspaper the activities of a public personality is a void agreement. Similarly, if a lawyer wants to create an interest, which will encourage him to perform his duties indifferently, the agreement shall be void. Nevile v. Dominion of Canada News Co(1915) b) An agreement by an agent with a third party whereby he would be enabled to make secret profits is illegal and void, as it tends to create a conflict between interest and duty www.assignmentpoint.com
Opposed to public policy 5. Agreements restraining personal freedom When a debtor promises not to change his residence till repayment of a loan is complete, such promise is void. 6. Agreements interfering with parental duties Where the adopting father promises money to the natural father in return for adoption of the latter’s son, such promise is void. Sitaram v.Harihur(1915) . www.assignmentpoint.com
Opposed to public policy 7. Agreements interfering with marital duties a) An agreement to pay money so that a party to a marriage may be helped in obtaining a divorce shall be against public policy and void. b) An agreement that the husband will always stay at the mother in law’s house and that the wife would never leave her parental house is void. www.assignmentpoint.com
Opposed to public policy 8. Marriage brokerage agreement Agreement to pay brokerage to a person for negotiating a marriage, is void because it is against public policy. The principal underlying this rule is that marriages should take place according to the free choice of parties and such choice should not be interfered with by third parties acting as brokers. A agrees with B for good consideration that she will not marry C. www.assignmentpoint.com
Void agreements There are certain agreements, which are expressly declared to be void. They are as follows: (1) Agreement by a minor or a person of unsound mind (2) Agreement of which the consideration or object is unlawful (3) Agreement made under a bilateral mistake of fact material to the agreement (4) Agreement of which the consideration or object is unlawful in part and the illegal part can not be separated from the legal part (5) Agreement made. without consideration www.assignmentpoint.com
Void agreements (7) Agreement in restrain of trade [Sec(27)] This is a contract which tries to limit a person’s right to work or conduct there business An agreement whereby one of the parties agrees to close his business in consideration of the promise by the other party to pay a certain some of money , is void, www.assignmentpoint.com
Cases in which restrain of trade is valid 1. A seller in business and its goodwill may be restrained reasonably from carrying on any business that similar to the one sold (Section 27). 2. A partner may be restrained by the others from carrying any business similar to that of the firm [Section 11(2) of the Partnership Act, 1932]. 3. An outgoing partner may be reasonably restrained by the remaining partners from carrying any business similar to that of the firm [Section 36(2) of Partnership Act, 1932] 4. On the dissolution of the firm, the partners may reasonably restrain each other from carrying any business similar to that of the dissolved firm (Section 54 of the Partnership Act, 1932). www.assignmentpoint.com
Cases in which restrain of trade is valid An agreement seeking to establish an economic combination, such combinations will be valid if (a) they are not against the interests of any of the contracting parties, and (b) they are not against public interest. An agreement between different ice manufacturing companies not to sell at a price below the agreed one A negative restraint in a service contract is valid if it is reasonable in point of period of time and area of operation, www.assignmentpoint.com
8) Agreement in restrain of legal proceedings (a) An agreement by which a party is restrained absolutely from taking usual legal Proceeding, in respect of any rights arising from a contract. (b) An agreement which limits the time within which one may enforce his contract Rights, without to the time allowed by the limitation act. www.assignmentpoint.com
(9) Agreements the meaning of which is uncertain Agreements, the meaning of which is not certain, or capable of being made certain, are void a) A agrees to sell to B “a hundred tons of oil.” There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty (d) A agrees to sell to “his white house for rupees five hundred or rupees one thousand.” There is nothing to show which of the price was to be given. The agreement is void. Further, an agreement “to enter into an agreement in future” is void for uncertainty unless all the terms of the proposed agreement are agreed expressly or implicitly www.assignmentpoint.com
(10) Agreements by way of wager Literally the word ‘wager’ means ‘a bet’ something stated to be lost or won on the result of a doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting agreements. Thus where A and B mutually agree that if it rains today A will pay B Tk.100 and if it does not rain B will pay A Tk.100 or C and D entered into agreement that on tossing up a coin, if it fall head upwards C will pay D Tk.50 and if falls tail upwards D will pay C Tk.50, there is a wagering agreement. www.assignmentpoint.com
Impossible (11) Agreements contingent on impossible events Illustration (a) A agrees to pay B Rs.1000 (as a loan) if two straight line should enclosed a space. The agreement is void. (b) A agrees to pay B Rs.1000 (as a loan) if B will marry A’s daughter, C. C was dead at the time of the agreement, the agreement is void. (12) Agreements to do impossible acts [Sec(56)] Illustration (a) A agrees with B to discover treasure by magic. The agreement is void. [Section 56]. (b) A agrees with B to run with a speed of 100 Kilometer per hour. The agreement is void. www.assignmentpoint.com
(13) Reciprocal promises where there are void promises Where there reciprocal promise to do things legal and also other things illegal, and the legal part can be separated from the illegal part (i.e. there is a separate consideration for different promises), the legal part is a contract and the illegal part is avoid agreement. Example- A and B agree that A shall sell B a house for Rs.10000 but if B uses it as a gambling house, he shall pay a Rs. 50000 for it. The first part of the agreement is valid and the second part is invalid www.assignmentpoint.com
Criminal laws If it is involve injury to the person or property to another – murder , robbery , smuggling, stealing, pick pocketing If the courts regards it as immoral – rape , smoke in public place, sexual harassment , acid , animal hunting Contracts involving violation of the criminal laws (such as agreements to buy and sell illegal narcotics) are obviously in violation of the law and are void in their entirety. Neither party to the contract can sue to enforce the contract, nor neither will be entitled to contract rescission or other equitable relief from the courts www.assignmentpoint.com
Illegality is commonly found in cases where a party is does not have a professional or trade license- driving without license Gambling agreements and agreements to extend credit for gambling are illegal Contracts which include payment of interest on money lent or an extension of credit may be illegal if the amount of interest charged Agreements which attempt to exonerate a party from liability for his own negligence or misconduct (exculpatory clauses) will be found illegal if applied to intentional misconduct. www.assignmentpoint.com
Illegal contracts Illegal contracts are generally void, but where one party to the illegal contract is innocent of wrongdoing or substantially less at fault, the contract may be treated as unenforceable (which allows the more innocent party to seek equitable recourse). In some instances, the court may choose to reform the contract to remove the illegality. www.assignmentpoint.com