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Explain, how an agreement in restraint of trade is void.

Explain, how an agreement in restraint of trade is void.

Owlgen
Course: B.Com

1 Answer

According to Section 2(g) of the Indian Contract Act, 1872, a void agreement is an agreement which is not enforceable by law. These types of agreements are void-ab-initio, that is, they are unenforceable right from the time of their inception. The following types of agreements have expressly been declared void under the various sections of the Indian Contract Act:

An agreements by or with persons incompetent to contract (Section 10 and 11): This section provides for agreements with minor which are considered void from the very inception.

Agreements entered into through a mutual mistake of fact between the parties (Section 20): These refer to those agreements where both the parties enter into an agreement when both are under a mistake relating to the subject-matter of fact.

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Agreement, the object or consideration of which is unlawful (Section 23): These include agreements the basis or consideration of which are against the law, that is, the Act is punishable under the criminal or special law, for example, Minor’s marriage which is in contravention of the Child Marriage Restraint Act. These also cover the contracts which are opposed to public policy, like, trading with enemy, agreements for stifling prosecution, contracts in the nature champerty and maintenance, agreements for sale of public offices, etc.

Agreement, the consideration or object of which is partly unlawful (Section 24): The act provides that a single consideration for one or more objects, or any part of any one of several consideration for a single object, is unlawful, the agreement is void.

Agreement made without consideration (Section 25): The agreements which do not have the essential elements of consideration are treated as void. However, there are certain exceptions to the rule of ‘no contract no consideration’ namely:

  • Agreements which are the result of natural love and affection between parties.
  • A promise to compensate for something voluntarily.
  • A promise to pay a time-barred debt.
  • Completed gifts.
  • Contracts of agency.

Agreements in restraint of marriage (Section 26): According to the section, every agreement in restraint of marriage of any person, other than a minor, is void. Such restraint maybe general or partial.

Agreements in restraint of trade (Section 27): Article 199(g) of the Constitution of India protects the fundamental right of freedom of trade and commerce. The act states that the Courts do not allow any tendency to impose restrictions upon the liberty of an individual to carry on any business, profession or trade. According to Section 27 “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” Thus, any agreement whether general or partial, qualified or unqualified which is in restraint of trade is void.

Exceptions.
  • Those created by status: (i) Sale of Goodwill (ii) Certain Restraints in Partnership.
  • Those arising from judicial interpretations (1) Trade Combinations, (ii) Exclusive Dealing Agreements, (iii) Service Agreements,
Agreements in restraint of legal proceedings (Section 29): The Section provides for the following two kinds of restraints:
  • Restriction on Legal Proceedings.
  • Limitation of Time.

Wagering Agreement (Section 30): According to Sir William Anson, a wagering agreement is a promise to give money or money’s worth upon the determination or ascertainment of an uncertain event. In other words, it can also be said that a wagering agreement is an agreement under which money or money’s Worth is payable, by one person to another on the happening or non-happening of a future uncertain event.

Exceptions to Wagering Agreements.
  • Transactions for the sale and purchase of stocks and shares or for the sale and delivery of goods, with a clear intention to give and take delivery of shares or goods. The intention to settle in price differences, the transaction is a wager and thus void.
  • Prize competitions which are games of skill.
  • An agreement to contribute to a plate or prize.
  • Contracts of Insurance.
Impossible Agreement (Section 56): It states that an agreement to do an act impossible in itself is void.

An agreement to enter into an agreement in the future.

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May 16, 2019
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