Agreement Expressly Declared as Void :
We have already seen that certain agreements are void ab initio under the Contract Act, like agreements by incompetent persons [Section 11], agreement with unlawful object or consideration [Section 23], agreement made under mutual mistake of fact [Section 20], agreement without consideration [Section 25], agreement in restraint of marriage, trade or legal proceedings etc., as they are opposed to public policy.
In addition to the above, there are also other agreements which are expressly declared as void.
(a) Where consideration is unlawful in part: By virtue of Section 24 of the Indian Contract Act, “If any part of a single consideration for one or more objects, or any one or any part of any one of several considerations for a single object is unlawful, the agreement is void”.
This Section is obviously a corollary to Section 23 of the Act. Where the consideration is unlawful, the entire agreement is void as the agreement has to be looked as a whole. The general principle of law is where the legal part of an agreement can be separated from the illegal part, then the legal part if it can be given effect by rejecting the bad part and retaining the good part, then the good part is given effect. But where no such separation is possible, the contract is altogether void.
Example: ‘A’ has business interest in Indigo, as a manufacturer. He also has interest in illegal traffic of other goods. Where ‘A’ employs ‘B’ for a salary of ` 2000/- to act as superintendent of A’s entire business, the agreement is void as the object of A’s promise unlawful in part.
(b) Agreement the meaning of which is uncertain (Section 29): Where the meaning of the terms of an agreement is uncertain or if it is not capable of being understood with certainty, then the agreement is void. But where the meaning is capable of being made certain, then the agreement is valid. For example where ‘A’ enters into an agreement to supply 100 tones of oil, the agreement is not valid as the meaning of it is uncertain since what type of oil that is promised to be supplied is not clear. But on the other hand if ‘A’ is a dealer of coconut oil only, then the meaning of the agreement would crystallize very easily and then the agreement would be valid.
(c) Wagering agreement: Let us discuss wagering contract. We shall also distinguish wagering agreements from speculative transactions and mere ‘gambling’.
Wagering agreement is one which involves payment of a sum of money upon the determination of an uncertain event. The essence of wagering agreement is where there are two parties, one wins, the other loses upon an uncertain event taking place in which neither of them has legitimate interest.
For example ‘A’ agrees to pay ` 500/- to ‘B’ if it rains and similarly ‘B’ agrees to pay ‘A’ if it does not. This is a classic case of a wagering agreement. But where one of the parties has control over the event, the agreement is valid. An agreement by way of a wager is void. A good definition of wagering agreement would be the one given by Anson: “A promise to give money or money’s worth upon determination or ascertainment of an uncertain event”.
Now let us see the position with regard to transaction of “purchase of lottery ticket” and “horse racing”. Section 30 of the Act provides that an agreement [to buy lottery tickets] is one by way of wager and is void. However any subscription or contribution or agreement towards such subscription or contribution towards any plate or prize or sum of money, of the value of ` 500 or more to be awarded to a winner of a horse race is not unlawful.
Speculative transactions: While as clearly seen, wagering contracts are void, speculative transactions are valid. It is often difficult to distinguish between the two. There are two bare elements of a speculative transaction. They are (a) mutual intention of parties to acquire or deliver goods or commodities and (b) undertaking of risk arising from movement of prices. In wagering contract, only the element of risk is seen.
Now let us take an example:
‘A’ enters into a agreement with ‘B’ to buy 100 bales of jute at ` 150/- per bale for forward delivery after six months. This is a proposed transaction of purchase @ ` 150/- per bale. What if the price at the time of delivery goes up to ` 200/- ‘A’ has the following two options:
(i) to take delivery of 100 bales at the contracted rate of ` 150/- and sell it to some other buyer and make a profit of ` 50/ -per bale or
(ii) to simply collect the difference of ` 50/- per bale from ‘B’
Similarly what if the price at the time of delivery goes down to ` 125/- per bale. ‘A’ has the following two options:
(i) to take delivery of 100 bales at the contracted rate of ` 150/- [and perhaps sell it to some buyer and incur a loss of ` 25 per bale] or
(ii) to pay the difference of ` 25/- per bale to ‘B’ & close the contract.
In the above example if the original intention of the parties was only to settle the difference in price, than it would be a wagering contract which would be void. Thus by now it would be clear that wagering postulates only incurring of risk. It is void because it is opposed to public policy.
While gambling and wagering are prohibited by law, speculation is not.
Now let us consider other peculiar situations to see whether they are wagering contracts or speculative contracts or valid contracts.
Insurance policy: An insurance policy is a valid contract. But if an insurance policy is taken by a person who has no insurable interest, then it is void. For instance a person who has no insurable interest in a ship, takes a policy against it being sunk, then the contract is void.
Promissory notes on a wagering contract: While a wagering contract is void ab initio, it is but automatic that a promissory note given out of a wagering contract is not enforceable by way of a suit. A promissory note of this character is one without consideration and hence is null and void.
Suit to recover deposit: A winner of bet cannot recover the amount which he has won even if the amount is kept by way of deposit by the loser with the stakeholder. Such earmarking or identification of funds does not enhance the validity of the contract which is void. In the above example the loser can recover the amount from stakeholders as long as the amount has not been made over by the stakeholder to the winner.
Wager and collateral transactions: The validity of a collateral transaction cannot be challenged because the main contract is a wager and void. For instance in a wagering contract, the broker is entitled to collect his brokerage. Similarly the principal can recover the prize money from his agent received by him on account of a wagering transactions.
The acid test of validly of a collateral transaction is whether the main transaction is illegal or legal but void. If the main transaction is illegal, the collateral transaction cannot be valid. For example security given for regular payment of the rent of a house let out for the purpose of gambling cannot be recovered; the recovery of security being tainted with the illegality of original transaction cannot be enforced.
A promise made by the loser of a wager to pay the amount lost in consideration of the winners forbearance to sue him as defaulter can be enforced as a fresh contract, separate and distinct from original wagering contract though collateral to it.
| Key Points
♦ An agreement not enforceable by law is void. In the public interest, some of the agreements have been expressely declared to be void under the Act. ♦ Any agreement in restraint of marriage of a person, other than minor is void. ♦ Every agreement by which any person is restrained from exercising a lawful profession, trade or business of any kind is void. ♦ Wagering agreements have been declared to be void. However, an agreement to subscribe towards and plate, prize or a sum of money of ` 500 /more to be awarded to the winner of any horse race, is not unlawful. Contract of insurance is not a wager, it falls under the category of contingent contract |