This article is written by Arya Mittal from Hidayatullah National Law University. The article seeks to explain all types of agreements such as valid agreements, void agreements, voidable agreements, etc in light of the Indian Contract Act, 1872.

This article has been published by Sneha Mahawar.

Introduction

Agreements are one of the most important aspects of our day-to-day lives. We enter into numerous agreements daily. These agreements are entered into consciously or subconsciously. Under the law, agreements confer a number of rights and obligations upon the parties. Thus, it is crucial to understand the types of agreements, and what agreements may be enforceable in a court of law in order to protect our rights and discharge the obligations so as to avoid any legal action against ourselves.

Different types of agreements

Valid agreement

A valid agreement may be defined as an agreement that, if enforceable by law, shall become a contract and make the parties to the agreement binding to the conditions thereof. An agreement is defined under Section 2(e) of the Indian Contract Act, 1872 (the Act). It states that “Every promise and every set of promises, forming the consideration for each other, is an agreement”. Thus, more than often, a valid agreement becomes a contract.

The essential conditions of a valid agreement include:

  • The agreement shall have a valid consideration.
  • The parties shall be competent to contract as per Section 11 and Section 12 of the Act.
  • The consent of the parties is free and uninfluenced.
  • The object of the agreement is lawful.

Section 11 of the Indian Contract Act, 1872

Section 11 of the Act provides the conditions for the competency of the parties to contract. To constitute a valid agreement, the parties shall be competent. Every person who is a major as per the provisions of the Majority Act, 1875, of a sound mind, and has not been expressly barred to enter into a contract by the law, shall be competent to contract. Thus, an agreement with a minor is not a valid agreement.

Section 12 of the Indian Contract Act, 1872

Section 12 of the Act provides that a sound mind for the purpose of a contract shall mean to be the capacity of the mind to understand the consequences of the agreement. A person who is of an unsound mind usually, but is of sound mind at the time of entering in an agreement, such agreement shall be a valid one. Similarly, a person who is usually of a sound mind, but of an unsound mind, while entering an agreement, such agreement shall be void.

Void agreement

A void agreement has been defined under Section 2(g) of the Act. It states that “An agreement not enforceable by law is said to be void”. In addition to the definition, the provisions of the Act declare certain agreements to be void, as the objects of such agreements are unlawful. These agreements include:

S. No.DescriptionIllustration
1.Agreements of which consideration or objects are unlawful in part as mentioned under Section 24 of the ActA offers to purchase a lawful plot of land and an unlawful parking space from B for a sum of Rs. 20 lakhs. The agreement shall be void as one of the objects is illegal.
2.Agreements without consideration under Section 25 of the Act A, without any reciprocal promise, agrees to pay a sum of Rs. 5000 to B. This shall be a void agreement.
3.Agreements restraining marriage under Section 26 of the ActA restrains his daughter B to marry C, who is a physically disabled person. This shall be a void agreement.
4.Agreements restraining trade under Section 27 of the ActA enters into an agreement with B to restrain B from establishing a competing business in his locality. This agreement shall be void as it puts a restraint on the trade of B.
5.Agreements restraining legal proceedings under Section 28 of the ActAn agreement between A and B provides that any dispute arising out of the course of the agreement shall be settled mutually and neither of the two shall approach the Court. This clause makes the whole agreement void.
6.Agreements with an uncertain meaning under Section 29 of the ActA agrees to sell to B “a hundred tons of oil”. There is nothing whatsoever to show what kind of oil was intended. The agreement is void for uncertainty
7.Agreements of wagering under Section 30 of the ActAn agreement to pay a sum of money to either of the parties on the basis of winning or losing of a cricket team shall be deemed void.
8.Agreements to perform an impossible duty under Section 56 of the ActA and B contract to marry each other. Before the time is fixed for the marriage, A goes mad. The contract becomes void. 

Section 24 of the Indian Contract Act, 1872

As per the provision, if an agreement is entered into by the parties, and a part of the consideration or object of the agreement is unlawful, then such agreement shall be void. However, an exception to this notion is a derivative form of the doctrine of severability. If a valid consideration or object of the agreement can be severed from the invalid part, the performance of such valid part shall be enforceable.

In the case of Bank of India Finance Ltd. v. Custodian (1997), BoI Finance Ltd. had entered into agreements with its customers, which were found to be violative of certain guidelines issued by the Reserve Bank of India. The question before the Court was the validity of the contracts which have already been executed. The Court upheld the validity of such agreements and it was held that where the transactions arising out of an agreement, and the agreement is found to be invalid, such transactions shall still remain valid.

Section 25 of the Indian Contract Act, 1872

The provision provides that agreements without any consideration shall be considered void agreements. However, the requirement of consideration is an exception in certain cases. These exceptions have been provided under Section 25 and can be understood as follows:

In a case where the promisor and the promisee have mutually agreed to exclude consideration from their agreement, and such condition of the agreement is provided in writing, duly stamped and registered under the law, then such agreements shall not be void. It is pertinent to note that the exception for the necessity of consideration in such cases shall be out of love and affection between the parties. Additionally, an agreement without consideration is a promise that is done to compensate for any prior deeds of the promisee that have been done voluntarily, and shall not be void. Lastly, an agreement that is a promise to pay, in full or in part, any payment to a creditor any debt due, but such debt has been barred by limitation, such agreement shall not be void.

In Rajlukhy Dabee v. Bhootnath Mookerjee (1900), the parties agreed to live separately on the condition that the husband shall pay monthly maintenance to his wife. It was a registered document in writing. The document also contained certain disputes and disagreements between the parties. However, the Calcutta High Court held that the agreement is a void agreement for the reason that there was no love and affection between the parties.

Section 26 of the Indian Contract Act, 1872

Section 26 of the Act provides that every agreement, in any manner, restraining a person to marry shall be void. Such restraint may be from marrying any particular person, or a person from a certain class of persons, or from marrying for a particular period or marrying at all. The only exception to this provision is restraining a minor from marrying any person. Such agreements shall be valid, as child marriage is itself a crime.

It is pertinent to note that only agreements restraining the parties from marriage shall be void. In a case where certain rights of the parties shall cease upon entering a marriage shall and has not been held to be void.

Section 27 of the Indian Contract Act, 1872

Section 27 provides that any agreement, restraining a person from carrying on any profession, trade or business of his choice, shall be void. However, it is not a straight-jacket rule applied to each case, rather it has an exception. If an agreement is entered into by the parties, one of which is buying the goodwill of another’s business, it may contain a condition where the buyer shall not engage in a similar business as that of the seller.

In Madhub Chander v. Raj Coomer (1874), the facts included two rival shopkeepers from a locality. The defendant, in this case, agreed to pay a sum of money to the plaintiff if the latter did not operate his shop in the same locality, to which he agreed. The defendant later refused to pay the sum of money, and hence was sued by the plaintiff. The Court held that the agreement was a void agreement, as it contained a provision for restraint of trade or business. Thus, in India, any agreement restraining any trade or business, either partially or completely, shall be void.

Section 28 of the Indian Contract Act, 1872

Section 28 of the Act provides that the agreements that restrict any of the parties to seek legal remedies or restrain legal proceedings shall be considered void agreements. However, there are exceptions provided by the law, wherein the parties may be restrained from approaching the Court. The first exception is an agreement with an arbitration clause. The second exception includes questions that have already arisen. The third and final exception to this provision is a guarantee agreement by a bank or a financial institution.

Section 29 of the Indian Contract Act, 1872

Section 29 of the Act provides that the agreements, the meaning of which is uncertain or cannot be ascertained, shall be considered as void agreements. Agreements require specific and defined objectives in order to confer definitive rights and obligations upon the parties. Any vagueness in an agreement may act as a factor for rendering the agreement void.

Section 30 of the Indian Contract Act, 1872

Section 30 provides that all the agreements by the way of wager shall be void. The term “wager” has not been defined under the provision. Hence, it shall be according to the judicial precedents. In Carlill v. Carbolic Smoke Ball Company (1892), Hawkins J. observed that “A wagering contract is one by which two persons professing to hold opposite views touching the issue of a future uncertain event, mutually agree that, dependent on the determination of that event, one shall pay or hand over to him, a sum of money or other stake; neither of the contracting parties having any other interest in that contract than the sum or stake he will so win or lose, there being no other real consideration for the making of such contract by either of the parties. It is essential to a wagering contract that each party may under it either win or lose, whether he will win or lose being dependent on the issue of the event, and, therefore, remaining uncertain until that issue is known. If either of the parties may win but cannot lose, it is not a wagering contract.”

Thus, the essential features of a wagering contract are the uncertainty of an event, mutual chances of both parties to gain something, no control of either party, and there shall be no other interest of the parties.

Wagering Agreements 

Wagering Agreements is when the first party promises to pay the second party on the occurrence of a certain event and the second party agrees to pay to the first party on the event not happening. It is between two parties of rational mind who understand they shall get profit or that shall face loss. As stated above, all wagering agreements fall under Section 30 and they are considered void. An example of a wagering agreement is the following. A and B agree with each other that if a ball hits a pot, A will pay Rs. 100 to B and if the ball does not hit the pot, B will pay A Rs. 100. Such an agreement is a wagering agreement and hence is void. 

In order for a wagering agreement to be considered so, the following elements should be present. 

  1. Both parties should have an equal opportunity to win or lose. 
  2. The event the wager is done on should be out of the control of both the parties. 
  3. The only interest of the parties to enter the agreement should be to win or lose. No other motive should be present. 
  4. The wager agreement is fully dependent upon the happening of the futuristic event.
  5. There should be a promise made by both the parties to pay the money or the consideration according to the conditions of the agreement. 

Contingent Agreement 

Contingent Agreements are under Section 31. Unlike wager agreements, they are valid contracts. Contingent agreements shall be executed on the basis of a promise which is contingent on the happening or non-happening of an uncertain future event. For example, A promises B to pay Rs 2000 in case there is water damage to A’s house. The essentials of this agreement are stated below.

  1. There must be a valid contract to do or abstain from doing something.
  2. The condition for which the contract has been entered into must be a future event, and it should be uncertain.
  3. The event on which the agreement is based should not be a part of the collateral.
  4. The event should not be dependent on the promisor. 

Despite being very similar in nature, contingent and wagering agreements are very different in nature. 

Contingent Agreements Wagering Agreements
A contingent agreement is valid.A wagering agreement is void
In a contingent agreement, the future uncertain event is merely collateral.In a wagering agreement, the entire agreement is based on an uncertain event.
In a contingent agreement, the parties have a real interest in the happening or non-happening of the event.In a wagering agreement, there is no interest in the event. There is merely an interest in gaining or losing profit. 
Not all contingent agreements are wagering agreements. All wagering agreements are contingent contracts

Voidable agreement

A voidable agreement may be defined as an agreement that may be revoked by either of the parties to the agreement due to various legal reasons. Such an agreement, when enforceable by law, shall be termed as a contract voidable at the option of a party. 

Section 19 of the Act provides that where the consent of a party has been procured by either coercion, misrepresentation or fraud, such party shall have an option to retaliate from the agreement as and when it deems fit. Similarly, under Section 19A, when the consent of a party to an agreement is obtained through undue influence, such a party has an option to revoke the agreement and has an option to set aside the contract completely. 

Section 53 of the Act provides that “When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promise, the contract becomes voidable at the option of the party so prevented; and he is entitled to compensation from the other party for any loss which he may sustain in consequence of the non-performance of the contract.”

In addition to the above-stated situations, where the promisor fails to perform his duty, as per the agreement of which time is an essential condition, within the stipulated time, then the agreement is voidable at the option of the promisee.

Difference between void and voidable agreements 

Void Agreements Voidable Agreements
Considered invalid from the start.Declared invalid by the parties later on due to certain reasons.
Invalid at face value.Valid at face value. 
No performance is possible.Performance is possible until declared invalid.
It is non-existent and cannot be upheld by any law.It is an existing agreement and is binding to one party involved in the contract.

Express and implied agreements

As stated above, an agreement may be defined as a promise coupled with consideration. Section 9 of the Act provides the meaning of express and implied promises. It states that any promise made through words by the parties shall be considered as an express promise, and any promise made other than words shall be considered as an implied promise. Thus, an express agreement shall be an agreement wherein the promise is express, and an implied agreement shall be an agreement wherein the promise is implied.

Illegal Agreements

Any agreements against the provisions of the law in force in India shall be considered an illegal agreement. Either of the two conditions, illegal object or illegal consideration, shall render the agreement illegal. Even if the content of an agreement compels the parties to perform an illegal act, it shall be an illegal agreement.

The difference between illegal and void agreements is that the latter is not necessarily against the provisions of the law in force, while the latter is explicitly against the provisions of the law. In other words, every illegal agreement is a void agreement, while every void agreement is not an illegal agreement.

Conclusion

The various types of agreements described under the Indian Contract Act, 1872, are very crucial and important in the day-to-day lives of each and every person. An understanding of the types of agreements shall help one protect his rights and discharge his duties in accordance with the law. Moreover, it is pertinent to note that an agreement should only be entered into by a person if such agreement is enforceable in a court of law. The courts have, time and again, rejected to provide relief to the parties stating the non-enforceability of the agreements. 

References

  • Avtar Singh, Contract and Special Relief (12th ed., 2021, Eastern Book Company)
  • Nilima Bhadbhade, Pollock & Mulla, Indian Contract & Specific Relief Acts (15th ed., 2017, LexisNexis)
  • Beatson (ed.), Ansons’ Law of Contract, (1998), Oxford, London

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