WHAT ARE VOID AGREEMENTS?

INTRODUCTION

Definition of a contract and an agreement

A contract is a legally binding agreement between two or more parties in which each party
undertakes to perform or refrain from performing an act. It creates mutual obligations
enforceable by law. Section 2(h) of the Indian Contract Act, 1872 defines a contract as;
“An agreement enforceable by law is a contract.”
All contracts are agreements but all agreements are not contracts. An agreement is a mutual
understanding between two or more parties that is not legally binding. It can cover informal
or social agreements that may not have legal consequences. While a contract is a legally
enforceable agreement between two parties that creates legal obligations that must be
fulfilled. for a contract to be legally enforceable, it must act upon certain conditions required
for a legally binding contract. These elements include;
 Offer and acceptance
 Consideration
 Free consent
 Capacity
 Enforceability
 Formality
Explanation of a void agreement
The agreements which are not considered valid or are not enforceable by law are called void
agreements. Section 2(g) of the Indian Contract Act, of 1872, defines void agreements. It is
defined as:
“An agreement not enforceable by law is said to be void”

Characteristics of a void agreement

A void agreement is an agreement that is not legally enforceable from the beginning and has
no legal effect. The following are the characteristics of a void agreement:

1.Lacks legal enforceability

A void agreement has no legal value and hence can’t be enforceable. The courts will not
uphold the agreement even if both parties give consent to it.
For example: A verbal promise between friends to meet for lunch is not enforceable. It is a
mutual understanding but has no legal consequences if not fulfilled.
In Balfour vs Balfour , A husband promised to send his wife maintenance payments while
they were apart. Later, the husband stopped making payments to his wife, and she sued
him. The court held that agreements between spouses, especially those of a domestic
nature, are not legally binding. It was declared a void agreement because the parties did not
intend to create legal relations. So, for an agreement to be enforceable, there must be an
intention to create legal relations. Without it, the agreement is void.
2. No legal obligations:
An agreement which is considered void, neither party has any legal duties to perform under
it. No party can compel the other to act or seek legal recourse.
Example: A contract to sell goods that no longer exist is void. Neither party is obligated to
perform because the subject matter is absent.
In Couturier v. Hastie (1856) , A seller sold a cargo of grain, but unbeknownst to the parties,
the grain had already perished before the contract was made.The contract was considered
void because the subject matter (the grain) did not exist at the time the contract was made. If
the subject matter of an agreement is impossible or non-existent, the agreement is void, and
no legal obligations can arise from it.

3. Violation of Legal Conditions

An agreement can be void if it violates essential conditions for the formation of a valid
contract.These conditions include

 Lack of consideration: If one party does not provide anything of value

 Unlawful object or purpose: If the agreement involves illegal activities or violates
public policy.
 Incompetent parties: If any party lacks legal capacity (e.g., minors, mentally
incapacitated individuals).
 Lack of free consent: If one party was coerced or deceived into agreeing.
 Impossible to perform: If the terms of the agreement are impossible to fulfill.

In Durga Prasad v. Baldeo (1880), A person constructed shops at the request of a local
government officer, and another party agreed to pay him a commission on all sales made in
those shops. The court held that this agreement was void for lack of consideration. The
promise to pay was not backed by any lawful consideration moving from the promisee. An
agreement without consideration is void unless it falls under specific exceptions provided by
law.

In Mohori Bibee v. Dharmodas Ghose (1903) (Privy Council), A minor mortgaged property
to secure a loan. Upon reaching adulthood, he sought to void the contract, arguing that he was
a minor at the time. The Privy Council held that a minor’s agreement is absolutely void and
unenforceable from the start. Contracts entered into by minors are void ab initio, as minors
lack the capacity to contract under most legal systems.

4. No Rights or Remedies

In a void agreement, no party has the right to demand

performance or seek remedies for breach of the agreement as
such agreement has no legal value. Example: A contract missing
key terms or clarity, such as an undefined payment amount, is
void. Neither party can sue the other for breach.

In Kalipada v. Dwijapada (1950), A contract for the sale of land was entered into, but the
terms were vague, and essential elements were missing. The buyer sought specific
performance. The court held that since the contract lacked clarity and mutual consent, it was
void and could not be enforced. When a contract lacks necessary legal elements, it is void,
and neither party can claim any rights or remedies.
5. Void ab initio

The agreement which is void from the beginning is called as void ab initio. Such kind of
agreements don’t even come to existence at first. Such agreements are invalid from the
moment they are created. For example: A contract with a minor (under legal
age) is void from the outset because minors cannot enter into
legally enforceable agreements.

In Smt. Shanti v. State of Haryana (1991), A property was sold in violation of the Punjab
Pre-emption Act. The buyer sought to enforce the contract.The court ruled that the contract
was void ab initio as it violated statutory provisions. Contracts that violate statutory
provisions or are prohibited by law are void from the outset.

6. Impossible to perfor

An agreement becomes void if it is impossible to perform due to unforeseen circumstances.

For example: A contract to deliver goods to a location that is destroyed by a natural disaster
becomes void since performance is now impossible.

In Satyabrata Ghose v. Mugneeram Bangur & Co. (1954), A contract was made to develop
a plot of land, but due to the government requisitioning the land during wartime, it became
impossible to perform.The court held that since the performance of the contract became
impossible, the contract was void. An agreement becomes void if its performance is
impossible due to events beyond the control of the parties.

Distinction between void and voidable agreements

A void agreement is one that is not legally valid from the start. It has no legal force, meaning
it cannot be enforced in a court of law. Essentially, it is treated as if it never existed. For
example, an agreement to do something illegal or between parties who are not legally
allowed to enter into a contract, like a minor, would be void.

On the other hand, a voidable agreement is different because it starts off as valid and
enforceable, but one party has the option to cancel it. For example, if one party was
pressured, misled, or tricked into the agreement. Until the party chooses to cancel, the
agreement remains in effect. If the party does cancel, it becomes void and no longer
enforceable. Section 2(I) of contract act , 1872, defines voidable contract as :

“ an agreement which is enforceable by law at the option of one or more of the parties
thereto, but not at the option of the other or others, is a voidable contract”

Circumstances in which agreements are void

The circumstances in which agreements are considered void under the, Indian Contract Act,
1872 are as follow : :

Agreements by incompetent persons (Section 11 of contract act , 1872)

According to Section 11, a minor (a person under the age of 18) is considered legally
incompetent to enter into a contract. Any agreement made with a minor is void as the minor
lacks the capacity to contract. A well-known case regarding this is Mohori Bibee v.
Dharmodas Ghose (1903), where the court ruled that a contract with a minor is void ab initio
(from the beginning). For example: a 17-year-old enters into a contract to
purchase a car. Later, the minor refuses to pay, and the seller sues. The
contract is void because a minor cannot enter into a legally binding
contract.

Persons of unsound mind: A person who is incapable of understanding the nature and
consequences of a contract due to mental illness or temporary insanity is also considered
incompetent. Any contract entered into by such a person is void. For example: If a person
suffering from severe schizophrenia enters into a contract to sell property,
but later it is proven that they were incapable of understanding the
contract due to their mental condition, the contract is void.

Persons disqualified by law: Certain individuals, such as those declared insolvent or

disqualified by court order, are legally barred from entering into contracts. Agreements with
such individuals are also void. For example: A person declared insolvent enters
into a contract to take out a loan. The contract is void because insolvency
disqualifies them from contracting.

2. Agreements without lawful consideration or object (Section 23):

Section 23 states that an agreement is void if the consideration or object is unlawful. This
could include agreements that involve illegal activities, acts forbidden by law, or activities
that are immoral or against public policy. For example, a contract to commit a crime or fraud
would be void.

3. Agreements made under a mistake (Section 20):

Section 20 deals with agreements based on mutual mistakes of fact. If both parties are under
a mistake regarding a fundamental fact that is essential to the agreement, the contract is void.
For example, if both parties mistakenly believe that a particular good exists when it actually
does not, the agreement is void.

4. Agreements made without consideration (Section 25):

Section 25 of the Act states that an agreement made without consideration is void, unless it
falls under specific exceptions, such as agreements made out of natural love and affection
between close relatives, promises to compensate for past voluntary services, or agreements to
pay a time-barred debt. Consideration is the price one party pays to obtain the promise of the
other party.

5. Agreements in restraint of marriage (Section 26):

Section 26 declares that any agreement that restrains a person from marrying, or restricts
their choice of whom to marry, is void. For example, an agreement that one party will not
marry or will marry only a particular individual is void, as it is against personal freedom.
6. Agreements in restraint of trade (Section 27):

Section 27 makes any agreement that restrains a person from engaging in a lawful
profession, trade, or business void. This is to promote free competition and prevent unfair
restrictions. However, certain exceptions, such as reasonable restrictions in partnership
agreements, are allowed. For example: , a business owner, sells his business to B
and agrees never to start a similar business anywhere in India. This
agreement is void as it imposes an unreasonable restraint on A's right to
trade. However, a restriction within reasonable limits, such as a specific
city or period of time, could be valid.

7. Agreements in restraint of legal proceedings (Section 28):

Section 28 voids agreements that restrict a party's right to pursue legal remedies. For
example, an agreement that one party will not take legal action against the other or will limit
the time in which they can bring a lawsuit is void. For example: A contract between A
and B states that B cannot sue A for any breach of contract. This clause is
void, as it restrains B’s legal rights to seek redress through the courts.

8. Agreements whose meaning is uncertain (Section 29):

Section 29 voids agreements where the terms are uncertain or vague, making it impossible to
ascertain the parties’ intent. For example, if an agreement is too ambiguous to determine what
was promised, it cannot be enforced. For example: A agrees to sell "a large quantity
of grain" to B. The exact amount or type of grain is not specified, making
the agreement too vague to enforce. This uncertainty renders the contract
void.

9. Agreements by way of wager (Section 30):

Section 30 deals with wagering agreements, which are agreements where one party stands to
gain or lose based on an uncertain event. Such agreements are void, as they are considered
speculative and against public policy. Betting or gambling contracts are examples of wagers
that are void under Indian law. For example: A and B agree that if India wins the
next cricket match, A will pay B Rs.10,000, and if India loses, B will pay A
Rs.10,000. This is a wager, and such agreements are void under Indian
law.

10. Agreements to do impossible acts (Section 56):

Section 56 declares that an agreement to perform an impossible act is void. If the

performance of a contract becomes impossible after the contract is made due to unforeseen
events, the contract is void. For example, if a contract is made to deliver goods but the goods
are destroyed in a fire before delivery, the contract becomes void due to impossibility of
performance. For example: A agrees to deliver certain goods to B by a specific
date. However, before the goods can be delivered, they are destroyed in a
fire. The contract becomes void because performance is now impossible.

Exceptions to Void Agreements under the Indian Contract Act, 1872

Natural Love and Affection:

According to ( section 25 )generally states that agreements made without consideration are
void, there is an exception for agreements made out of natural love and affection between
close relatives. For this exception to apply, the following conditions must be met:

 The agreement must be in writing

 The agreement must be registered under the law.
 It must be made between close family members.

For example: if a father promises to give a piece of property to his son out of natural love
and affection, and this agreement is put in writing and registered, it will be enforceable even
though there is no consideration.

In Rajlukhy Dabee v. Bhootnath Mukherjee (1900), it was held that for this exception to
apply, the relationship between the parties and the reason for natural love and affection must
be clear. In this case, the court ruled that the agreement was not enforceable as it lacked both
natural love and affection and the necessary registration.

2.Compromise of Disputed Claims

Section 25(2) provides an exception where an agreement to settle a dispute, even if the
original claim may have been without consideration, is enforceable. This means that a
compromise of disputed claims, whether the claim is in doubt or a legal suit is pending, is
valid even if there is no consideration for such a compromise. For example : If two parties
have a dispute over a debt and, to avoid litigation, they agree to settle the matter out of court,
this agreement is enforceable even if one party ends up not paying the full amount that was
originally claimed.

In Sitaram Das v. Shiv Narain Singh (1931), it was held that the compromise of a disputed
claim is a valid contract, even if the underlying claim may have been unenforceable for lack
of consideration. The court emphasized that such settlements are encouraged to promote the
peaceful resolution of disputes.

3.Trusts and Charities: Certain Agreements Made for Charitable Purposes

Agreements made for charitable purposes can be enforceable, even if there is no

consideration involved. The Indian Contract Act does not explicitly provide a section for this,
but courts have upheld charitable trusts and donations where the intention of the parties is
clear, and the agreement is made for a social or religious cause. In such cases, courts may
enforce the agreement in the interest of public good. For example:If a person makes a
written and signed promise to donate a specific amount to a charitable trust or to fund the
construction of a school or hospital, this agreement can be enforced, especially if the trust has
acted upon this promise.
In Kedar Nath v. Gorie Mohammad (1886), a person promised to donate funds for the
construction of a town hall. The promise was not supported by any consideration. However,
when the trustees began construction based on this promise, the court held that the promise
became binding because the trustees incurred expenses in reliance on it. This case established
that charitable promises, where action has been taken based on reliance, are enforceable.

Cross references

In the Indian Contract Act, 1872, Sections 64, 65, and 66 provide important provisions
related to the consequences of voidable contracts, obligations of parties receiving benefits
under void agreements, and the communication and revocation of voidable contracts. These
sections aim to ensure that the rights of parties involved in such contracts are fairly balanced
and that any benefits derived from contracts that are either void or voidable are returned or
compensated.

Section 64 of the Act deals with the consequences when a voidable contract is rescinded. A
voidable contract is one where one of the parties has the option to either enforce or rescind
the agreement. This typically arises in cases involving coercion, undue influence, fraud, or
misrepresentation. When the party entitled to rescind the contract chooses to do so, Section
64 ensures that the party rescinding the contract restores any benefits they may have received
under the contract. This is to prevent unjust enrichment. For example: if A enters into a
contract with B under duress and later chooses to void the contract, A must return any benefit
obtained from B as a result of the contract. Likewise, B must restore any benefits A had
provided. This section seeks to restore the parties to the position they were in before entering
the contract, as far as possible.

Section 65 applies to void agreements or contracts that have become void after they were
initially formed. It obligates any person who has gained an advantage under such a void
agreement to restore or compensate the other party. For example, if A and B enter into a
contract that later becomes void (such as a contract to perform something that becomes
impossible due to unforeseen circumstances), and A has already paid B some money for the
performance of the contract, B is legally bound to return the amount or compensate A. The
rationale behind Section 65 is to prevent one party from profiting from an agreement that has
no legal standing or has lost its enforceability. The section applies to agreements that are void
ab initio (from the beginning) or those that become void due to factors like impossibility of
performance, frustration, or a supervening event.

Section 66 further elaborates on the mode of communicating or revoking a voidable contract.

This section emphasizes that when a party exercises the option to rescind a voidable contract,
the revocation must be done in a clear and timely manner. The communication of such
revocation must be explicit and done in a manner that effectively notifies the other party of
the decision to rescind. The rationale is that rescinding a contract is a serious action with
legal consequences, so the other party must be made aware of the decision so that they can
act accordingly. For example: if A wishes to rescind a contract with B due to fraud, A must
clearly communicate this decision to B, ensuring that the message is conveyed in a timely and
proper manner, such as through written notice or any agreed-upon method. The law thus
ensures transparency and fairness in how such communications are handled, reducing the
likelihood of disputes regarding whether or not a contract has been rescinded.

References from Indian Partnership Act 1932

Section 6: Determining the Existence of a Partnership

Section 6 of the Indian Partnership Act, 1932, determines the existence of a partnership.
The main elements include sharing of profits, joint ownership of property, and mutual
agency. Even without a formal agreement, if the conduct of the parties shows these elements,
a partnership may be recognized.In the case of Inder Singh v. Karam Singh (1930), the court
acknowledged a partnership based on the conduct and actions of the parties rather than a
formal written agreement.

Section 30: Relations of Partners to Third Parties in Void Contracts

Section 30 deals with the implications of void contracts for third parties. If a contract entered
into by a partnership is declared void, the firm is not liable for it. For instance, in *S. P.
Gupta v. Union of India* (1981), the court ruled that the firm's obligations to third parties are
limited when the contract is found to be void. The firm cannot be held accountable for
contracts that lack legal validity.

Void Agreements and Their Effect on Partnerships

Void agreements in a partnership have no legal standing, meaning the partnership is not
bound by them. When a voidable contract is rescinded, any benefits received must be
returned. In M. S. N. S. Private Ltd. v. R. K. Agarwal (1965), it was established that if a
contract is rescinded due to its voidable nature, the parties must return any benefits received
to prevent unjust enrichment.

Cross-References to the Indian Contract Act, 1872

The Indian Contract Act, 1872, provides principles that impact partnership agreements. For
example, under Section 23(regarding lawful consideration), if a partnership agreement
involves illegal consideration, it is void. The case of Kedar Nath v. Gorie Mohammad
(1886) illustrates that charitable promises without consideration might be enforceable if acted
upon. Additionally,Section 56(impossibility of performance) affects partnerships if an
agreement becomes impossible to perform, as seen in Dhanrajam v. State of Maharashtra
(1955), where the court held that agreements impossible to perform are void. Sections 64 and
65 of the Indian Contract Act ensure that benefits under void or voidable agreements are
returned, as reaffirmed in cases involving the return of benefits or compensation for benefits
received under void agreements.

Judicial Interpretations and Case Laws

1. Mohori Bibee v. Dharmodas Ghose (1903):

This landmark case addressed agreements with minors. The Supreme Court held that a
contract entered into by a minor is void ab initio (from the beginning). In this case,
Dharmodas Ghose, a minor, entered into a mortgage agreement with Mohori Bibee. The court
ruled that since Ghose was a minor, the contract was void, emphasizing that contracts with
minors cannot be enforced. This case is pivotal in establishing the principle that contracts
with minors are not legally binding.
2.. Kedar Nath v. Gorie Mohammad (1886):

This case dealt with charitable promises and their enforceability. The court ruled that an
agreement to make a charitable donation, if made out of natural love and affection and acted
upon, can be enforceable even if it lacks consideration. The ruling underlined that promises
made for charitable purposes, when acted upon, are binding despite the absence of traditional
consideration, highlighting the exception to the general rule on consideration.

3. Sitaram Das v. Shiv Narain Singh (1931):

This case involved the compromise of disputed claims. The court upheld the enforceability
of agreements to settle disputes, even if the original claims might be unenforceable due to
lack of consideration. The ruling reinforced the principle that such compromises are valid and
binding, reflecting the exception under Section 25 of the Indian Contract Act regarding
agreements made to settle disputed claims.

4. Dhanrajam v. State of Maharashtra (1955):

This case discussed agreements rendered impossible to perform. The court held that
contracts involving impossible acts are void. In this case, an agreement to supply certain
goods became impossible to perform due to unforeseen circumstances. The court’s decision
reinforced the principle that contracts are void if they involve impossibility of performance,
aligning with Section 56 of the Indian Contract Act.

Impact of Void Agreements on Contract Law Principles:

Void agreements significantly impact contract law principles, particularly those related to
enforceability, consideration, and performance.

1. Enforceability:

Void agreements are treated as though they never existed. This means that no party can
enforce a void agreement. The principle that a void agreement has no legal effect is crucial in
contract law, ensuring that only valid and legally binding agreements are enforceable. For
instance, the ruling in *Mohori Bibee v. Dharmodas Ghose* established that agreements with
minors are not enforceable, reinforcing the need for legal capacity in contract formation.

2. Consideration:

The principle of consideration is fundamental in contract law, but void agreements often lack
lawful consideration. Section 23 of the Indian Contract Act requires that an agreement must
have a lawful object and consideration to be enforceable. Agreements that involve illegal
objects or considerations, such as in *Kedar Nath v. Gorie Mohammad*, are void. This
ensures that only agreements with lawful and valid consideration are recognized, preventing
enforcement of agreements that do not meet legal standards.

3. Performance:

Agreements that become impossible to perform are considered void under Section 56 of the
Indian Contract Act. The impact of this principle, as illustrated in cases like *Dhanrajam v.
State of Maharashtra*, is that parties cannot be held liable for agreements that cannot be
performed due to unforeseen events or impossibility. This principle protects parties from
being bound to fulfill agreements that are no longer feasible.

4. Restitution and Remedies:

When a contract is void, principles of restitution apply to prevent unjust enrichment. As

seen in cases involving voidable contracts, such as *Sitaram Das v. Shiv Narain Singh*,
benefits received under void agreements must be restored or compensated. This ensures
fairness and prevents one party from unjustly benefiting from a void agreement.

Conclusion:

Void agreements are contracts that are legally unenforceable from the outset because they
lack essential elements like lawful consideration, capacity, or a lawful object. Such
agreements cannot be enforced, as seen in cases like Mohori Bibee v. Dharmodas Ghose.
According to Sections 64, 65, and 66 of the Indian Contract Act, 1872, rescinded voidable
contracts require the return of benefits, and benefits obtained under void agreements must be
restored to prevent unjust enrichment. The Indian Partnership Act, 1932, further clarifies the
impact of void agreements on partnerships, including partnership existence and liability
limitations. Overall, these principles ensure that only valid and enforceable contracts are
recognized, upholding fairness and preventing unjust enrichment.