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This article is written by Isha, a second-year student of BBA-LLB at Bharti Vidyapeeth, New Law College Pune. This article talks about section 29 & 30 under the Indian Contracts Act,1872 with special mention to Uncertain agreements.

Introduction

An agreement under Section 29 of the Indian Contract Act, 1872 is void when its terms are ambiguous and uncertain, thus it cannot be made clear. For instance: X agrees to trade a ton of oil. This agreement is unenforceable for uncertainty as it is uncertain because classification intended cannot be ascertained.

Section 29 explains the meaning of an agreement that should be transparent on the appearance of it, as explained in the case Kovuru Kalappa Devara vs Kumar Krishna Mitter, but the impact can be provided to the contract if its application is found with reasonable clarity. If this is not possible then the contract would not be enforceable. Slight difficulty in understanding will not be recognised as vague.

The application can be expressed as a party who seeks relief from the court for infringement of a contract, the obligation must be able to identify the obligation with adequate precision to justify the remedy. The law thus stated is more elastic, and acknowledges that various levels of assurance may be needed for the remedies.

Agreement to agree or negotiate

A contract to negotiate the terms of an agreement is not, in appearance or substance, an “agreement to agree”. If despite their bonafide efforts, the parties fail to arrive at an ultimate agreement on the terms in effect the contract to negotiate is deemed performed and the parties are released from their obligations. Failure to recognise is not itself a breach of the contract to negotiate. A party will be responsible only if a failure to attain ultimate agreement emerged from a breach of that party’s obligation to negotiate in good faith.

“Agreements to agree” are a financial fact of life for businesses, especially those involved in perpetual term of contracts, such as development and research agreements in the life sociology or industrial sectors, multiple technology contracts, or resources and energy supply arrangements.

Often companies will come into an agreement on the source of an understanding (whether express or implicit) that a further arrangement will be reached at some scheduled time, when the commercial grounds for and proposed terms of that further agreement may have become more manifest.

As a consequence, rather than negotiating their proposed secondary agreement at the point of primary contracting, the parties slightly agree that certain or all contractual terms of that agreement will be determined in the future.

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Preliminary negotiations taking definite shape

Our common law has originally regarded the issue of preliminary negotiations liability as a matter of contract formation. Where the grieved party is capable to satisfy the criteria of consideration, offer and acceptance, certainty and an intention to be bound. Contract law posses a number of tools capable of resolving disputes arising prior to contract.

This article will, consequently, address the more controversial situation where the plaintiff has failed to satisfy the rules of contract formation. For instance, because of uncertainty or incompleteness or because the parties cannot reach definite terms and their goals.

Preliminary Agreements come into picture when forming and assigning a broad spectrum of transactions and agreements. They are comprised of numerous market participants and are, at best, tolerated by others. They have been the cause of litigation. When accurately drafted, a Preliminary Agreement can provide significant upside to a recommended transaction. It is often used to draw focus to the early steps of negotiation.

The term during which a Preliminary Agreement applies can also be a moment when the organisations and negotiating teams acquire a working relationship that improves trust in the negotiation process and strengthens the commitment of the parties to each other to work towards a final agreement. In the given case Gaurav Monga vs Premier Inn India Pvt Ltd & Ors 2017 Delhi HC explained the parameter of preliminary negotiations. 

Capable of being certain

As given in the case of Bahadur Singh vs Fuleshwar Singh, a contract is valid if its terms are competent of being made certain. The essence of the contract should not be uncertain and further, it needs to be noted that it is not competent of being made certain. Mere uncertainty or ambiguity which can be effortlessly removed by proper interpretation does not make a contract unenforceable. Even oral agreements will not be held uncertain or vague if its terms are ascertainable with precision.

If any contract of more than one meaning, when formed, can produce in its purpose more than one effect, then such contracts will not be void for uncertainty. A contract becomes void for uncertainty only if its primary terms are uncertain or incomplete. When any contract is formed in which some parts are uncertain and some are possible, then uncertain parts of that contract will be void only. To determine what is necessary and what is not, one must look towards the aim of the parties.

There is no such terminated contract when a necessary or crucial terin is expressly left to be settled by future agreement of the parties. Also, there will not be an obligatory contract where the language is complex and inadequate of any definite meaning.

An agreement which fits for the future fixation of consideration by the parties or by a third party is competent of being certain and is valid under Section 29. Such a contract will not be considered void for uncertain.

Agreement by way of wager

Section 30 of the Indian Contract Acts provides that the agreement by way of the wager is void. The term wager is to stake something of utility upon the outcome of some coming future uncertain event, such as a horse race, or upon the ascertainment of the fact concerning some past or present event.

In the UK, all arrangements or contracts, whether by writing or in parole, by means of gaming or wagering, shall be unenforceable and void; and no action shall be brought or sustained in any court of law or justice for redeeming any sum of wealth or valuable thing affirmed to be gained upon any wager.

Wagering Agreement is not defined in the Indian Contract Act 1860. Cotton, L.J. in Thacker v. Hardy said: “The essence of wagering and gaming is that one party is to win and other is to fall upon an upcoming event which at the time of contract is of an uncertain nature, i.e., that if the future event sets out one way A will lose, but if it turns out another way, he will win.”

In the case of Carlill v. Carbolic smoke Ball Co., it was held that “It is essential to a wagering contract that each party may under it either win or fail, whether he will win or fail remaining dependent on the issue of the event and therefore being unknown till that issue is known. If either of the parties wins but cannot lose, it is not a wagering contract.”

In this case, the defendants assured to pay 100 pounds to anyone who got influenza after using the smoke ball manufactured by them. It was believed not to be a hazard because the user could not miss or lose anything if he failed to grippe influenza. The essential features to be noted here is that there should be a fair chance of gain or loss to the individuals and it should be about an uncertain event. The most prominent feature of the wager is that each party has the chance of winning or losing.

Exception in favour of certain prizes for horse riding

More often, the state government might sanction certain horse race competition if the provincial laws authorise it and if the people participate by contributing with an amount of RS 500 or more towards the reward money which is to be given to the winner of the horse race then it will not consider a wager.

Section 294A of the Indian Penal Code not affected.

In this section, nothing shall be recognised to sanction any transaction correlated with horse-racing, to which the terms of Section 294A of the Indian Penal Code would apply.

Agreement not capable of being enforced

When a contract is enforceable it is regarded as an agreement in a contract under the law by Section 10 of the Act. It deals with the enforceability of obligations. According to this section, if the agreement is made for some consideration then it is regarded as a contract, between the parties who are competent to contract with free consent and for a lawful object.

According to section 2(j) of the Indian Contract Act, the agreement not enforceable in the court of law is void “An agreement not enforceable by law is said to be void”. A void agreement is defined under section 2(g) in the Indian Contract Act which says in the court of law it is terminated to be a valid contract.

A contract is not in existence when it is void. The law is not imposed by any legal responsibility because they are not empowered to any protection of laws to either party particularly the complaining individual as far as contracts are concerned. An unlawful act carried out by an agreement is an example of a void agreement or void contract.

ILLUSTRATION:– A contract between smuggler or drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In such a case, no party is allowed to go to court to execute the contract for action.

Types of Void agreement

The contract of void agreement can be of two types :

  1. Void-ab-initio: it means the contract which is unenforceable from the very beginning. The Latin term ‘void ab initio’ means “void from the beginning”. The parties of the contract are illegally based on what was written in the agreement because the agreement in issue was never valid. However, certain exceptions do apply. Such type of agreement can never be void because it was never a legal contract, to begin with.
  2. The impracticality of its performance is Void:- A contract can also be void due to the impossibility of its performance. For example: If a contract formed between two parties X & Y but during the execution of the contract the object of the contract becomes impracticable to do (due to action by someone or something other than the contracting parties), then the contract cannot be enforceable in the court of law and is thus void.  Shikha Misra & Anr vs S. Krishnamurthy, 2014 the case cited is an example of a void contract.

Lockout agreement

Lockout in general meaning is “the exclusion of employees by their employer from their place of work until certain terms are agreed to.”Lockout agreement is a contradictory statement Lockout or exclusivity agreements try to stop a seller transmitting with any other party during the exclusivity or lockout period.

However, it is necessary to stress that lockout agreements do not secure either the seller to sell or the buyer to buy. They do not prevent the seller, at the end of the lockout period for selling the property to some other. Lockout agreements are more general in the context of a sale and purchase but they can also be applied to the grant of a lease or an agreement for a contract as well as to other real estate transactions.

Enforceability of the lockout

  1. Negative in nature: The seller must oblige not to negotiate with others the agreement. A positive commitment to the buyer is unlikely to be unenforceable to negotiate on the seller with the potential ability.
  2. For a fixed time period: the agreement within a “reasonable time” will be considered as void because they are uncertain.
  3. Payment or “consideration”: as a deed made it must be executed for the agreement. However, it is the responsibility of the buyer to acquire costs. For instance, legal costs in guiding its solicitors to carry out due attention or surveyors’ costs in carrying out a survey can amount to consideration.

Remedies for breach of the lockout agreement

  • If the agreement during the lockout period is breached by the seller and sells to someone else, the inherent buyer will only be able to recover its lost or wasted costs. For example- legal fees or surveyor’s fees. The potential buyer is very unlikely to get an injunction to stop the seller selling to someone else during the exclusivity period because the buyer had no power in the first place to require a sale to the buyer.
  • An injunction is highly unlikely and the damages will be limited; so if a seller gets an increased offer from someone else during the exclusivity period it might decide to breach the lockout an agreement, proceed with the other party and pay the minimal damages for breach.
  • For agreed damages, some agreements therefore expressly provide at a specified higher level to obtain the seller think twice before breaching the agreement. Whether a seller grants to such a damages provision will depend on the bargaining strength of the parties and the duration of the exclusivity. The level of predetermined damages should be a reasonable pre-estimate of the loss. If they are too high, they could be deemed a “penalty”, which is not enforceable

Option for renewal of tenancy

A financial agreement is a clause in a renewal option that outlines the terms for renewing or extending an original agreement. They may be included in any type of financial agreement in which it is beneficial for an entity to extend the agreement for a longer-term. Whether you are a tenant or a landlord, one of the crucial terms to consider when negotiating a contract or lease is the renewal clause.

The clause of renewal confers for a fixed term after the expiry of the initial term of the tenant a consecutive option. For a landlord, it is essential to ensure while the renewal term and to refuse a troublesome tenant the capacity to execute the option to renew that the renewal clause is drafted to maximize the rent payable. Conversely, a tenant or householder wants to ensure that the renewal rent can be reasonably negotiated and that the option to renew cannot be revoked for minor infractions under the lease.

Illustrations

Section 29 states agreements of uncertainty, the meaning of which is not certain, or capable of being made certain, are void. 

  • X agrees to sell to Y “a hundred tons of wheat”. There is nothing rational to show what kind of wheat was intended. The agreement is void for uncertainty.
  • X grants to sell to Y one hundred tons of fuel of a specified description, known as an article of commerce. There is no uncertainty or clause to make the agreement void.
  • I who is a trader in cotton clothes only agrees to sell to H “one hundred pieces of cotton clothes”. The nature of I’s trade provides an implication of the words and I have entered into a contract for the deal of one hundred pieces of cotton clothes.
  • X agrees to sell to Y “all the equipment in my granary at Ramnagar”. Thus, there is no uncertainty in this case to make the agreement void.

Conclusion

The Agreements whose object or meaning is not certain or is incompetent of being made certain are void in nature. An agreement can be uncertain either because it contains vague or indefinite terms or because it is inadequate. The universal rule is that if the terms of an agreement are uncertain or indefinite, which can not be determined with reasonable certainty of the parties intention, then the law does not enforce a contract.

References


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