VOID AGREEMENTS AND CONTINGENT CONTRACTS

DEFINITION Sec. 2 (g) A void agreement is one which is not enforceable by law. Such agreements do not give rise to any legal consequences & are void ab initio Following agreements have been expressly declared to be void by the Act 1. Agreements made by incompetent parties (Sec.11) 2. Agreements made under a mutual mistake of fact (Sec.20) 3. Agreements the consideration or object of which is unlawful (Sec.23) 4. Agreements the consideration or object of which is unlawful in part (Sec.24) 5. Agreements made without consideration(Sec.25) 6. Agreements in restraint of marriage (Sec.26) 7. Agreements in restraint of trade (Sec.27) 8. Agreements in restraint of legal proceedings (Sec.28) 9. Agreements the meaning of which is uncertain (Sec.29) 10. Agreements by way of wager(Sec.30) 11. Agreements contingent on impossible events (Sec.36) 12. Agreements to do impossible acts(Sec.56) 13. In case of reciprocal promises to do legal & illegal things, the second set to do illegal acts, is a void agreement (Sec.57) AGREEMENTS OF WHICH THE MEANING IS UNCERTAIN (SEC.29) Agreements, the meaning of which is uncertain or capable of being made certain, are void Uncertainty may be regarding the existence, quantity, quality or price or title of subject matter E.g. A agrees to sell B 100 tons of oil. Agreement is void for uncertainty as there is no indicator as to what kind of oil E.g. A, who is the sole dealer of coconut oil, agrees to sell to B 100 tons of oil, there is no uncertainty as the nature of As trade indicates that it refers to only coconut oil

Case: Pushpabala V. LIC of India A agreed to pay a certain sum of money when he was able to pay. Held, the agreement is void for uncertainty WAGERING AGREEMENTS OR WAGER (SEC.30) A wager is an agreement between 2 parties, by which one promises to pay money or moneys worth on the happening of some uncertain event in consideration of the other partys promise to pay if the event does not happen Event is uncertain because it is to happen in the future or if it has already happened & the parties are uncertain & express opposite views Essentials of a wagering agreement 1. Must contain a promise to pay money or moneys worth 2. Promise must be conditional on an event happening or not happening. Generally, it contemplates a future event but it may also relate to a past event provided the parties are not aware of its result or the time of its happening 3. Each party must stand to win or lose. Cannot be a wager if either of the parties may win but cannot lose or may lose but cannot win 4. Neither party should have control over the happening of the event one way or the other. If any one party has control over the event, then the transaction is not a wager 5. Neither party should have any other interest in the event, apart from the sum of money which he will gain or lose. An agreement is not a wager if the party to whom the money is promised on the occurrence of an event, has an interest in its non-occurrence. Hence, an insurance contract is not a wager E.g., 2 parties betting against each other on the outcome of a game or match, a lottery or buying of a lottery ticket Transactions which are not wagers A crossword competition involving skill. Prize in competitions of games of skill are not wagers, provided the prize amount does not exceed Rs.1000

Games of skill, e.g., picture puzzles, athletics A subscription or contribution towards any plate, prize or sum of money of Rs.500 & above Share market transactions which involve the delivery of shares & stocks Insurance contract Contracts of insurance resemble wagering agreements but their character is different

DIFFERENCE BETWEEN WAGERS & INSURANCE CONTRACTS 1. Insurance Contract Insured to have insurable interest in subject matter Contract of indemnity which is legally valid Actual loss is to be compensated Treated as beneficial to the people & encouraged Parties have no insurable interest Void ab initio Amount agreed upon is not enforceable Does not serve any useful purpose & brings misery to families

2. Wagering Agreements

VOID CONTRACTS Sec.31 A contingent contract is a contract to do or not to do something, if some event collateral to such contract does or does not happen, i.e., the contract is contingent upon the happening of an event Sec.32 A contingent contract to do or not to do something on the happening of an event, becomes impossible when the event cannot be performed E.g. A contracts to pay a sum of money to B, when B marries C. C dies without being married to B. The contract becomes void A voidable contract becomes void, when the person whose consent is not free, repudiates the contract

E.g. A misrepresents facts to B & enters into a contract with B. B becomes aware of the misrepresentation & repudiates the contract, which becomes void A contract becomes void by supervening impossibility or illegality (Sec.56, Para 2) E.g. A contracts to take Bs cargo in his ship, at a foreign port. As country goes to war with the country in which the port is situated & contract is void when war is declared RESTITUTION Restitution Restoration of benefit taken by a person under a contract. The benefit is restored when the contract becomes void Principle If a person has unjustly enriched himself at the expense of another, he is required to make restitution to that other Sec. 64 Consequences of rescission of voidable contract o If a contract is voidable at the option of one of the parties 7 that party chooses to rescind it, the other party need not perform any promise therein contained o The party who has received the benefit under the voidable contract, should restore such benefit to the person from whom it has been received Sec. 65 Obligations of a person who has received advantage under void agreement or a contract which becomes void o When an agreement is void or a contract becomes void, any person who has received any benefit under such contract or agreement, is bound to restore it or to make compensation for it, to the person from whom it is received E.g. A, a singer, contracts with B, the manager of a theatre, to sing at the theatre for 2 nights in every week for the next 2 months & B is to pay Rs.1000 for every performance. On the 5th night, A willfully absents

herself. B rescinds the contract but he must pay her for the 4 nights for which she has performed Sec.65 applies to contracts discovered to be void or contracts which become void. It does not include the following a. Contracts which were void when they were entered into b. Contracts of parties incompetent to contract CONTINGENT CONTRACTS Sec.31 Contingent contract refers to such contracts to do or not to do something, if some event collateral to such a contract, does or does not happen E.g. - A agrees to sell his land to B, in case he succeeds in his litigation concerning that land Essential features of contingent contracts i. ii. iii. Its performance depends upon the happening or non-happening in future of some event Event must be uncertain. If the event is bound to happen & the contract has got performed, it is not a contingent contract Event must be collateral or incidental to the contract E.g. Contracts of insurance, indemnity & guarantee Event can also include the act of the Promisor or 3rd party, upon which the contract is contingent. However, it cannot be at the mere will & pleasure RULES REGARDING CONTINGENT CONTRACTS Sec.32 - Contingent contracts dependent on the happening of an uncertain future event cannot be enforced until the event has happened. If the event becomes impossible, such contracts become void E.g. A contracts to pay B a sum of money, when B marries C, his daughter. C dies without being married to B. Contract becomes void. This is an example of

a condition precedent, in which the liability arises on the happening of the event Sec.33 Where a contingent contract is to be performed if a particular event does not happen, its performance can be enforced when the happening of the event becomes impossible E.g. A agrees to pay B a sum of money if a certain ship does not return. The ship is sunk. Contract can be enforced when the ship sinks. Here, there is a condition subsequent on the happening of which the liability of Promisor arises Sec.34 If a contract is contingent upon a persons actions at an unspecified time, event is considered to be impossible when such person renders it impossible that he should so act within any definite time E.g. A contracts to pay B a sum of money, when B marries C, his daughter. C marries D. Marriage of B to C is now an impossibility, although it may be possible that C may marry B, upon the death of D or a divorce Sec.35 - Contingent contracts to do or not to do anything, if a specified uncertain event happens within a fixed time, become void if the event does not happen or its happening becomes impossible before the expiry of time. They may be enforced if the event does not happen within the fixed time E.g. A agrees to pay B a sum of money if a certain ship returns within a year. Contract may be enforced if the ship returns within the year & becomes void if the ship is sunk at sea Sec.36 Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether or not the fact is known to parties E.g. A agrees to pay B Rs.1000 if 2 straight & parallel lines would meet. Agreement is void DIFFERENCE BETWEEN CONTINGENT CONTRACT & WAGERS A. Contingent Contract Future event is collateral to the contract Promisor may have some interest in the event Valid contract, even collateral contracts are valid

B. Wagering Agreement Future event is the main determining factor Parties have no other interest apart from the money which they win or lose Void contract. Under English Law, both void & illegal. Under Indian Law, collateral transactions are valid as only void & not illegal COMPARISON OF VOID & VOIDABLE CONTRACTS I. Void contract II. Unenforceable by both parties Becomes void due to subsequent event Cannot create any right or obligation. 3rd party does not get valid title or right, if purchasing from a party to contract Voidable Contract Enforceable if the aggrieved party has waived the right to avoid it Free consent is absent Good contract until avoided by aggrieved party Bonafide 3rd party can acquire a valid title before the contract is avoided