Introduction – Void Agreements

There are some underwhelming agreements. Some become the basis of enforceable contracts while others are considered void from the onset. Such contracts are termed as void agreements and they have no legal binding on the part of either party to it. It is essential for businesses, individuals, and legal practitioners also to know about the various aspects of a void agreement. This article explains what void agreements mean in law in India, the provisions dealing with it, the types of void agreements,s and some practical tips on how to ensure that your agreements do not become void and therefore illegitimate.

You must know how void agreements work whether you are drafting a contract or reviewing one because understanding this will help to alleviate some of the legal traps that await an unsuspecting party. Here are the nitty-gritty details of void agreements — with examples to make things clearer, and tips that you can use so your interests are covered.

What is a Void Agreements?

A void agreement is an agreement without legal effect and which cannot be enforced by law against either party. Void agreements, as defined in Section 2(g) of the Indian Contract Act, 1872 are those which are not enforceable by law due to the absence of essential elements such as lawful consideration, legal object, and free consent.

Void agreements are null from the outset and differ in this respect to voidable agreements which continue to be valid until one party chooses to rescind them on legal grounds.

Key Features of Void Agreements:

Here are some of the key aspects regarding void agreements:

• Not Legally Binding: Such contracts are not enforceable in the court.
• No Obligations: There is no legal cause of action for either party to perform under these agreements.
• Null from Manasarovar: When void agreements are completed, it is loaded with non-nature. This does not establish legal rights or remedies for parties.

Difference Between Void and Voidable Agreements:

Unlike voidable agreements, which are valid till canceled or voided, Agreements that are void are unenforceable from the start. A voidable agreement, however, is valid until one party calls it into question because of things such as coercion or misrepresentation.

For example, a contract enacted under pressure is enforceable at the option of the aggrieved party but a wagering agreement is void ab initio. Identifying this diversity is fundamental to accurately deciphering the contents of legal papers.

Common Examples of Void Agreements

Here are some typical instances of an unexecuted agreement:

• Contracts for unlawful objects or acts
• Agreements without consideration lawful in nature
• Restraint of trade or marriage contracts.
• Betting contracts such as lottery.

However, these agreements are unenforceable and have no binding effect under Indian law.

1. Contracts With Illegal Consideration or Purpose

Explanation:

Section 23 of the Indian Contract Act, 1872 states that any agreements in restraint of unlawful acts or agreements involving an object opposite to public policy are void. It prevents agreements from contravening the rule of law or public interest.

Examples:

• Illegal Activity: A tacit contract for contraband Such as an agreement between two parties to divide profits from the sale of narcotic Agent
• Conviction due to Fraudulent Intent: A conspiracy to create fake documents, tax fraud For instance, consented to phony financial gain docs for bank loans.
• On Public Policy Grounds of Contract: An agreement that seeks to be a bribe for the government official to win tenders.

2. Unenforceable Agreements With No Consideration

Explanation:

Agreements, devoid of lawful consideration are void unless they come within the exceptional categories as spoken of under Section 25. Consideration is also the equivalent of something you give to receive in a valid contract between parties.

Examples:

Lack of Consideration: A promise to convey property for consideration with no paper trail.

• Registered document and executed for love and affection, as where father conveys property to his son.
• An offer to pay a debt that is past the statute of limitations.

3. Agreements In Restraint of Trade

Explanation:

Section 27, Agreements not to be in restraint of trade, void -all agreements that are unreasonable restraints on an individual right to trade or profession except reasonable non-compete agreement

Examples:

• Lifetime Ban: An employment contract preventing an employee from ever working again in the related field.
• Non-Compete Clause: A provision that made it impossible for the business partner to open a similar business within 20 years because they live within 1000km of it.

Valid Exception:

• A non-solicitation of employees clause to prevent the employee from poaching other employees for six months
• A non-compete clause that prevents an employee from working within a certain geographic location or joining a competitor for up to six months;

4. Wagering Agreements

Explanation:

Wagering contracts are speculative and do not result in reciprocal obligations of the parties. Indian law will declare that void right from the beginning.

Examples:

• Gambling or Betting: Deals where the results rely on an uncertain future occasion, such as betting on a cricket match.
• Case Laws: In the case of Gherulal Parakh v. Mahadeodas Maiya (1959) it was held by the Supreme Court that, wagering contracts are void as they are non-enforceable

5. Restraint of Marriage Agreements (H3)

Explanation:

Agreements restricting the right to marry are void under Section 26, considering marriage a fundamental right in India. The sole exception to this policy involves those who are underage.

Examples:

• Restriction of Marriage: A contract in which one party binds themselves not to marry a person, for example, from a particular caste or religion.
• Financial Strain: An arrangement for which someone receives money to keep from marrying another person.

Exception:

• Child protection laws permit restrictions on marriages of minors.

Key Legal Provisions Governing Void Agreements in India

Key legal provisions affecting void agreements under the Indian Contract Act,

• Section 23: an unlawful consideration or object:- An agreement that is forbidden by law or deals with illegal objects is void in nature. Courts also look at whether the agreement complies with public policy and law.

• Section 25: Absence of consideration:- An agreement entered into without consideration, is void unless it comes under the exceptions such as love and affection or for a charitable purpose.

• Section 26: Restriction of marriage:- An agreement that takes away their right to marry (except for minors) is against public policy and thus void.

• Clause 19: Restriction of Trade:- This part of the act makes unenforceable contracts in restraint of trade except for reasonable non-competition agreements.

• Section 29: Uncertain terms:- If the terms of an agreement are ambiguous, the contract (or more often, a portion of an agreement) could be void for lack of definiteness and enforceability.

These are the provisions that outline the basis of agreements that shall be made void.

We will also be informed about the practical-relevant action points to control these risks and comply with the Indian Partnership Act. To learn more, please see our guide on Navigating Legal Challenges in Indian Partnerships.

Examples of Void Agreement in Real-Life Scenarios  

Typically void agreements include:

• Contracts relating to illegal activities or things.
• Agreements that impose unduly harsh restrictions on trade;
• Agreements for betting or wagering.
• Restraints on marriage.
• Agreements without any legal consideration.

Such agreements are considered null and void under Indian law; however, such agreements are unenforceable (non-liquidus fundi) in the court of law.

Case Study: Gherulal Parakh v. Mahadeodas Maiya (1959)

The case of Gherulal Parakh v. Mahadeodas Maiya (1959) is a landmark decision that established that wagering agreements are void in law in India. The Supreme Court opined that these agreements are too vague, do not create any binding commitments, and thus cannot be enforced in a court of law.

Details:

The case was a dispute about a speculative contract dependent on the price of the underlying market. The court held that agreements as such are void by virtue of Section 30 of the Indian Contract Act, 1872, being opposed to public policy and principles underlying legally enforceable contracts.

Hypothetical scenario: Restraint of trade

Section 27 of the Indian Contract Act, 1872 provides that any agreement which restrains someone from carrying on a trade or carrying on the profession is void. A dry clause, like a clause that prevents a business partner from entering the same industry forever, cannot be held.

Details:

A clause between a retailer and wholesaler never to sell similar goods would be unreasonable, so would be void. However, this does not extend to broadly drafted non-compete clauses for an excessive period of time.

Example of Illegal Object or Activity

Section 23 of the Indian Contract Act provides that agreements relating to illegal objects or activities are void. A contract, for example, to smuggle goods or to bribe a civil servant is unenforceable.

Details:

Such contracts are against public policy, subverting the administration of justice; hence void ab initio. In reality, these agreements are never enforceable in court.

Exemplary Case of / Failure to Consider

Under Section 25, the agreements which are without consideration are void unless they come within certain exceptions which include promises made out of natural love and affection.

Details:

An example of this would be if party A agreed to give property to party B without consideration written into the agreement.

Illustration of Restriction of Marital Unions

Under Section 26 of the Indian Contract Act, agreements restraining marriage, other than with respect to minors, are void. A contract that forbids someone from marrying in a particular religion or caste, for example, is always unenforceable.

Details:

Marriage is a fundamental right, and any agreement that restricts this right offends public policy, and therefore void.

Steps to Avoid Void Agreement 

Things to prevent void agreements include:

1. Confirm that the object, and consideration of the contract are legal.
2. In other words, there must be clarity and an all-encompassing detailed aspect of every condition.
3. Include lawful consideration.
4. Do not restrict unreasonably.
5. Have a legal professional go through the contract.

These steps will allow both an individual and a business to know that if they enter into a contract, the law will be up-holding it.

Elaborate Points on How to Avoid Void Agreements:

1. Check that the object and counter-object of the contract is legal
   • Make sure the contract is not subject to any illegal matters like smuggling, fraud, or bribery.
   • The consideration (value exchanged) should be legally and ethically appropriate.

For example, if the contract is to sell stolen goods, it is void because it involves an unlawful activity.

2. Make Sure All Terms Are Specific and Clear
   • Don’t use ambiguity or vague terms that can be misinterpreted.
   • Clearly lay out the roles, responsibilities, and duties of each party
   • For example: Instead of saying ‘services to be provided’ say, ‘website maintenance on a monthly basis which includes bug fixes, updating website data, and backup.

3. Include Lawful Consideration
   • Consideration is the heart of any great contract and must be not illegal or impossible to perform.
   • Do not enter into non-reciprocal transactions or prohibited transaction contracts.
   • Illustration: A contract to bequeath property is a gift and therefore has no consideration to support it, and is void.

4. Do Not Impose Preposterous Restrictions:
   • Make sure that any limitations on actions, such as non-compete clauses or trade limitations, are reasonable in terms of scope, time, and geography.
   • For example, non-compete agreements that restrict a former employee from returning to the same field for life are null and void. An area-based 6-month ban could be applied.

5. Ask a Practice Lawyer to go Through the Agreement:
   • Obtain a review of the agreement for its terms regarding legality and public policy with an appropriate attorney
   • They are legal experts who can point to all potential issues and recommend changes that make the contract enforceable.
   • For instance, always consult a legal professional before signing a partnership contract to avoid provisions that could make it null and void.

Why Taking These Steps Is Essential 

Knowing how to avoid void agreements will help you make sure the contract is enforceable, as well as protect against financial loss and minimize legal disputes. The presence of clear language, adequate consideration, and efforts to comply with applicable laws are imperative to enforceable contracts.

Taking these steps not only protects your interests, it also fosters trust and responsibility within contracts.

Consequences of Entering into Void Agreement

Void Agreements – which have no legal effect

1. Both parties have no legal recourse.
2. Transactions that cannot be enforced may cause financial losses
3. Void agreements damage the reputation of businesses.

On the other hand, void agreements are invalid from inception with no legal protection or enforceability.

Points on Amendments:

1. Lack of Legal Remedies:
   • A void agreement: An agreement that is not enforceable in a court of law.
   • Example: A party delivers under a null contract and has to do that for nothing.
2. Financial Losses:
   • The financial damages flow from deals in void contracts
   • Payments or resources expended pursuant to these agreements may be non-recoverable.
   • Publishing: For example, a party investing money and the enterprise based on an illegal contract will lose its entire investment; he cannot claim restitution.
3. Reputational Damage:
   • Private Prosecutor May Question If Businesses Had Broken Agreement
   • An illegal contract can damage the reputation of a business and its relationship with third parties.
   • Example: If a company gets trapped in a Star Chamber deal tie-up for corruption, its reputation could suffer publicly and it might even be subjected to regulation.
4. Operational Disruptions:
   • Cut disputes further result in halts in operations of actually existing businesses catching void agreements.
   • For example, a supplier with an empty contract could stop deliveries and thus production would be affected.
5. Missed Opportunities:
   • When invalid agreements are made, either party has lost an opportunity.
   • For example, customers become businesses or non-enforceable agreements turn into contracts.

Why Understanding the Consequences Matters

Void Agreement consequence- void agreement consequence is important to avoid incurring a monetary loss, legal trouble, and tarnishing the reputation of involved parties. People and companies alike benefit from addressing potential void contracts for their own protection primarily, or at least to allow themselves to conduct business without concern.

This only serves to reinforce the need to have enforceable agreements in writing and get advice before entering into a contract.

How to Remedy Void Agreements 

To remedy void agreements:

1. Then you must renegotiate to make it legal.
2. Take legal advice on re-drafting the agreement or restructuring it.
3. To make voidable agreements valid by removing legal impediments.

These remedies facilitate reducing loss and staying.

Points on How to Make Void Agreements Valid:

1. Terms relating to negotiating-a-renegotiation of the deal to conform with legal terms
   • Look for clauses or terms that make the contract void (such as illegal objects, lack of consideration, or unreasonable restraints).
   • Remove and replace invalid terms with legally acceptable alternatives via an amendment to the agreement.
   • For instance, a partnership agreement’s non-compete could be reworked to have limited duration and geographic reach if it was too broad.
2. Consult with an Attorney To Rework or Rewrite the Contract:
   • Obtain an experienced attorney to review the contract and suggest ways on how you could fashion it.
   • Re-creation of a contractual document in accordance with the Indian Contract Act and Laws.
   • Example: If an agreement contains ambiguous terms, a lawyer may assist in re-drafting it so that the terms become precise and binding.
3. Legal Issues Converting Voidable Agreements into Valid Agreements:
   • Many agreements that are voidable may be cured if the reason for voidability is removed–e.g., obtaining consent without coercion, curing fraud, and so on.
   • Corrective Measures: Sign a new agreement, and remove contingent clauses that would be invalid due to legal defects.
   • For example, a contract that was entered into under duress can be set aside but will be enforced if freely given new consent in another agreement.
4. Settle by mutual agreement to avoid litigation:
   • When disputes arise due to a void agreement, mutual settlement can help in reducing the monetary loss and also retaining relations.
   • Parties can also mutually agree to terminate the invalid contract and replace it with a valid one.
   • For example, If a partnership deed is void for non-compliance, both partners may come to an agreement regarding the settling of current obligations and prepare another partnership deed.
5. Make Stakeholders Aware Of Legal Compliance:
   • Explain to the stakeholders why contracts must abide by legal standards.
   • Ensuring compliance with future agreements reduces the risk that a contract will be rendered void.
   • Example: Running a workshop for one of your client’s procurement team to learn the fundamentals of contract law.

Why Remedies for Void Agreements Matter?

Solutions to void agreements help reduce losses, avert litigations in the future, and allow parties to make legally enforceable contracts. Important remedies include renegotiation, advice of counsel, and the conversion of voidable contracts to binding contracts.

Corrective action is required to comply with the law [and] protect all parties involved.

Conclusion

As the very word ‘void’ implies, a void agreement is part of this area of law one should remember that an agreement may not always be enforceable under the law. They also stress the critical aspect of meeting legal standards when preparing or entering into contracts. If you are a business owner, legal professional, or just an individual entering into a contractual relationship, void agreements are worth knowing about to help protect your rights and interests.

Void agreements highlight the importance of ensuring that contracts are legally sound from inception. By understanding the governing provisions, examples, and preventive measures, individuals and businesses can protect their interests.

If you have doubts about an agreement, consult a legal expert to ensure compliance and enforceability. Proactive efforts today can save significant challenges tomorrow.

Corrida Legal is the preferred corporate law firm in Gurgaon (Delhi NCR) and Mumbai. Reach out to us on LinkedIn or contact us at contact@corridalegal.com/+91-8826680614 in case you require any legal assistance. Visit our publications page for detailed articles on contemporary legal issues and updates.