Notes Void Agreements

VOID AGREEMENTS SECTION 26 Agreement in restraint of marriage Agreement in restraint of marriage of any person, other than a minor, is void. SECTION 27 Agreement in restraint of trade Any agreement whereby anyone is restrained from carrying on a lawful trade, profession or business of any kind is to that extent void. To carry on any lawful trade or profession is a fundamental right guaranteed by the Constitution of India and it cannot be taken away by making an agreement. Note:- Restraint may not be absolute. A partial restraint is also void. Exceptions a)

Statutory

i)

Sale of goodwill

A person who sells the goodwill of a business may agree not to carry on similar business within local limits and for a reasonable period. This is a valid restraint. ii)

Partnership

Partners of a firm may mutually agree not to carry on a similar business either directly or indirectly. An outgoing partner may also be restrained from doing the business competing with the firm provided the limits are reasonable. b) Judicial i) ii) iii)

Exclusive Dealing Agreements Service Agreements Business Combinations

SECTION 28 Agreement in restraint of legal proceedings. An agreement whereby anyone is restrained absolutely from exercising his lawful rights by resorting to courts or tribunals is to that extent void Note:- Restraint has to be absolute. Illustration -A contract where parties agree to have jurisdiction of Mumbai courts only is not void. Exception- Arbitration Illustration – The parties to the contract decide that in case of dispute none of them shall go to any court and the dispute shall be referred to the arbitration of an independent third person. SECTION 29 Ambiguous/ Uncertain agreements Agreements the meaning of which is not certain or capable of being made certain are void. Illustrations1) A agrees to sell his horse to B. B in consideration agrees to pay Rs.5000 if the horse is lucky to him. 2) Ramesh agrees to sell 500 litres of oil to Suresh. The agreement is void since it does not specify the type of oil. 3) Ramesh who deals in coconut oil only, agrees to sell 500 litres of oil to Suresh. The agreement is valid since it is implied that he is to sell coconut oil.

SECTION 30 Wagering Agreements Agreements by way of wager are void and no suit shall be brought for anything alleged to be won on any wager. Essentials of a wager a) Uncertain event- Event may be past or future. The parties are uncertain about the outcome. b) Mutual chances of gain or loss Both the parties shall have an opportunity to win or lose. If one party is to win only, it is not a wager. c) The parties do not have any control over the event. d) The parties do not have any other interest in the event except the amount of the bet. Exceptions i) ii) iii)

Horse races Government Lotteries Quiz games

TENDER OF PERFORMANCE Section 38 When the parties to a contract offer to perform their respective promises, it is a tender or offer of performance. ESSENTIALS OF A VALID TENDER OF PERFORMANCE 1. It should be of a proper quality If the contract is to supply basmati rice, the promisor cannot offer any other variety. 2. It should be of proper quantity If the contract is to supply 100 Kgs., the promisor cannot offer 80 kgs. lying in his stock and balance to be given at a future date. 3. It should be at a proper place If the contract specifies the place of performance, the offer shall be made at that place, else it should be offered at the place where the promise is carrying on his business. 4. It should be at a proper time If the time of performance is specified, the offer shall be made at that time. If no time is specified in the contract, the offer shall be made during normal business hours of the promise. 5. It should be unconditional If the contract for supply of an article is on credit of 3 months, the promisor cannot insist on cash terms while offering to perform If the valid offer or tender of performance is refused by the promisee, tender shall be equal to performance and the promisor shall be entitled to exercise all the rights under the contract, as if he has performed his promise.

ANTICIPATORY BREACH OF CONTRACT Section 39 Where a party to a contract has refused to perform or has disabled himself from performing his promise in its entirety, the promisee may put an end to the contract, unless he has signified by words spoken or written or by conduct his acquiescence in its continuance. Illustration A theatre manager employs a singer to perform concert on 7 consecutive nights. The singer remains absent on 4 th night. The theatre manager can immediately put an end to the contract. However, if the singer after remaining absent on 4 th night turns up on 5 th night and he is allowed to sing by the theatre manager, the contract cannot be terminated before the expiry of 7 th night. The theatre manager by his action in allowing the singer to perform on 5 th night, signified his acquiescence in continuance of the contract. The theatre manager is still entitled to claim compensation from singer for his absence on 4 th night. Note – Doctrine of anticipatory breach of contract can be applied only to those contracts which involve series of performances.

DOCTRINE OF FRUSTRATION SECTION 56 History of doctrine PARADINE V/S JANE The plaintiff agreed to let out his residential premises to the defendant. Due to outbreak of war, the defendant could not occupy the premises. The court held that defendant is liable to pay the rent. To mitigate the rigour of the above rule, doctrine of frustration was introduced. The doctrine states thatSometimes the parties to the contract are discharged from their respective obligations under the contract, due to supervening impossibility. The contract is then said to be frustrated. In the following cases, the courts have applied the doctrinea) Destruction of subject matter A agrees to give his marriage hall on rent to B. Before the date of marriage, the hall is burnt by fire. The contract is frustrated. b) Non occurrence of expected events A cricket match is scheduled between India and Pakistan. Mr. X books the flat of Mr. Y wherefrom the match can be viewed. The wicket is damaged by some hooligans and the match is cancelled. The contract is frustrated. If Mr. X has already paid any amount to Mr. Y, he is entitled to get the refund. c) Govt. regulations A agrees to supply liquor to B on a particular day for a specific price. Before the date of performance, the Govt. bans the sale of liquor.

The contract is frustrated. EFFECTS OF FRUSTRATION 1) Future obligations are put to an end 2) In respect of obligations already incurred, a right of compensation accrues to the party performing the obligations DOCTRINE OF NOVATION SECTION 62 The parties to the contract may agree to substitute a new contract for it or to rescind or alter it. The original contract need not be performed. Consent of parties to the old as well as new contract is necessary. By virtue of a contract between A and B, B is liable to A to pay Rs. 5000. By virtue of another contract between B and C, C is liable to pay Rs. 5000 to B. A, B and C agree that C will pay rs. 5000 to A. In this case the original contracts between A and B as ell as between B and C are discharged.