3.5 VOID AGREEMENTS
Expressly declared Void Agreements
(1) Agreement in restraint of marriage (Section 26): Every agreement in restraint of marriage of any
person other than a minor, is void. So, if a person, being a major, agrees for good consideration not to
marry, the promise is not binding and considered as void agreement.
(2) Agreement in restraint of trade (Section 27): An agreement by which any person is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. But this rule is subject to the following exceptions, namely, where a person sells the goodwill of a business and agrees with the buyer to refrain from carrying on a similar business, within specified local limits, so long as the buyer or his successor in interest carries on a like business therein, such an agreement is valid (goodwill is the advantage enjoyed by a business on account of public patronage and encouragement from habitual customers).
The local limits within which the seller of the goodwill agrees not to carry on similar business must be reasonable. Under Section 36 of the Indian Partnership Act, 1932 if an outgoing partner makes an agreement with the continuing partners that he will not carry on any business similar to that of the firm within a specified period or within specified local limits, such an agreement, thought in restraint of trade, will be valid, if the restrictions imposed are reasonable.
Similarly, under Section 11 of that Act an agreement between partners not to carry on competing business during the continuance of partnership is valid.
But an agreement of service by which an employee binds himself, during the term of his agreement, not
to compete with his employer is not in restraint of trade.
Example 50: B, a physician and surgeon, employs A as an assistant for a term of three years and A
agrees not to practice as a surgeon and physician during these three years. The agreement is valid and
A can be restrained by an injunction if he starts independent practice during this period.
Example 51: An agreement by a manufacturer to sell during a certain period his entire production to a
wholesale merchant is not in restraint of trade.
Example 52: Agreement among the sellers of a particular commodity not to sell the commodity for less
than a fixed price is not an agreement in restraint of trade.
(3) Agreement in restraint of legal proceedings (Section 28): An agreement in restraint of legal
proceeding is the one by which any party thereto is restricted absolutely from enforcing his rights under
a contract through a Court or which abridges the usual period for starting legal proceedings. A contract
of this nature is void.
However, there are certain exceptions to the above rule:
(i) A contract by which the parties agree that any dispute between them in respect of any subject
shall be referred to arbitration and that only the amount awarded in such arbitration shall be
recoverable is a valid contract.
(ii) Similarly, a contract by which the parties agree to refer to arbitration any question between them
which has already arisen or which may arise in future, is valid; but such a contract must be in
writing.
(4) Agreement - the meaning of which is uncertain (Section 29): An agreement, the meaning of which is not certain, is void, but where the meaning thereof is capable of being made certain, the agreement
is valid.
Example 53: A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of
oil was intended. The agreement is void for uncertainty. But the agreement would be valid if A was dealer only in coconut oil; because in such a case its meaning would be capable of being made certain.
(5) Wagering agreement (Section 30): An agreement by way of a wager is void. It is an agreement
involving payment of a sum of money upon the determination of an uncertain event. The essence of a
wager is that each side should stand to win or lose, depending on the way an uncertain event takes
place in reference to which the chance is taken and in the occurrence of which neither of the parties has
legitimate interest.
Example 54: A agrees to pay ` 50,000 to B if it rains, and B promises to pay a like amount to A if it does not rain, the agreement will be by way of wager. But if one of the parties has control over the event, agreement is not a wager.
Essentials of a Wager
1. There must be a promise to pay money or money’s worth.
2. Promise must be conditional on an event happening or not happening.
3. There must be uncertainty of event.
4. There must be two parties, each party must stand to win or lose.
5. There must be common intention to bet at the timing of making such agreement.
6. Parties should have no interest in the event except for stake.
Transactions similar to Wager (Gambling)
(i) Lottery transactions: A lottery is a game of chance and not of skill or knowledge. Where the prime
motive of participant is gambling, the transaction amounts to a wager. Even if the lottery is sanctioned
by the Government of India it is a wagering transaction. The only effect of such sanction is that the
person responsible for running the lottery will not be punished under the Indian Penal Code. Lotteries
are illegal and even collateral transactions to it are tainted with illegality (Section 294A of Indian Penal
Code).
(ii) Crossword Puzzles and Competitions: Crossword puzzles in which prizes depend upon the
correspondence of the competitor’s solution with a previously prepared solution kept with the editor of a newspaper is a lottery and therefore, a wagering transaction.
Case Law: State of Bombay vs. R.M.D. Chamarbangwala AIR (1957)
Facts: A crossword puzzle was given in magazine. Abovementioned clause was stated in the magazine.
A solved his crossword puzzle and his solution corresponded with previously prepared solution kept with the editor. Held, this was a game of chance and therefore a lottery (wagering transaction).
Crossword puzzles, picture competitions and athletic competitions where prizes are awarded on the
basis of skill and intelligence are the games of skill and hence such competitions are valid. According to
the Prize Competition Act, 1955 prize competitions in games of skill are not wagers provided the prize
money does not exceed ` 1,000.
(iii) Speculative transactions: an agreement or a share market transaction where the parties intend to
settle the difference between the contract price and the market price of certain goods or shares on a
specified day is a gambling and hence void.
(iv) Horse Race Transactions: A horse race competition where prize payable to the bet winner is less than ` 500, is a wager.
Example 55: A and B enter into an agreement in which A promises to pay ` 2,00,000 provided ‘Chetak’
wins the horse race competition. This is not a wagering transaction.
However, Section 30 is not applicable in an agreement to contribute toward plate, prize or sum of money of the value of ` 500 or above to be awarded to the winner of a horse race.
Transactions resembling with wagering transaction but are not void
(i) Chit fund: Chit fund does not come within the scope of wager (Section 30). In case of a chit fund, a
certain number of persons decide to contribute a fixed sum for a specified period and at the end of a
month, the amount so contributed is paid to the lucky winner of the lucky draw.
(ii) Commercial transactions or share market transactions: In these transactions in which delivery of goods or shares is intended to be given or taken, do not amount to wagers.
(iii) Games of skill and Athletic Competition: Crossword puzzles, picture competitions and athletic
competitions where prizes are awarded on the basis of skill and intelligence are the games of skill and
hence such competition are valid. According to the Prize Competition Act, 1955 prize competition in
games of skill are not wagers provided the prize money does not exceed ` 1,000.
(iv) A contract of insurance: A contract of insurance is a type of contingent contract and is valid under law and these contracts are different from wagering agreements.
Distinction between Contract of Insurance and Wagering Agreement
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