CMA Foundation Study Material Business Laws Paper 1 Lesson 2.2

Prepare for your CMA Foundation Paper 1 Business Laws and Business Communication. using our CMA Foundation Study Materials. Here is Lesson 2.2 Void and Voidable Agreements No Consideration No Contract.

In Lesson 2.2 of the CMA Foundation Paper 1, you will learn how to deal with cases where the essential elements of a valid contract are missing.

Lesson 2.2 Void and Voidable Agreements No Consideration No Contract

In the previous lesson, we learned that an agreement becomes a contract when it fulfuls all the essentials of a valid contract. But there may be situations where one or more essentials of a valid contract are missing. In such situations, the contacts become void, voidable, illegal or unenforceable. The distinction matters because it determines whether the parties have legal rights and when those rights can be enforced.

Voidable Contract Sec. 2(i)

A voidable contract is enforceable by law at the option of one or more parties but not at the option of the other party. This usually happens when free consent is absent — for example, consent obtained by coercion, undue influence, fraud, or misrepresentation.

For instance, if A forces B to sign an agreement to sell a farm for ₹5 lakh, B’s consent was not free; the contract is therefore voidable at B’s option.

Void Agreement Sec. 2(g)

A void agreement is one that is not enforceable by law at all and therefore creates no legal rights or obligations. Such an agreement is null and void ab initio — meaning it is treated as invalid from the very beginning. An agreement to perform an unlawful act is a typical example of a void agreement.

Void Contract Sec. 2(j)

A void contract starts as a valid and enforceable contract but, due to a later event or change, ceases to be enforceable by law. In other words, it becomes void after formation because of supervening impossibility or a change in law.

For example, if A contracts to export goods and, before performance, the government bans such exports, the previously valid contract becomes a void contract.

Agreements Expressly Declared Void under the Indian Contract Act

The Indian Contract Act, 1872 clearly declares certain agreements as void, meaning they cannot be enforced by law from the beginning. These include the following:

1. Agreement by a Minor or Person of Unsound Mind [Sec. 11 & 12]

Any agreement entered into by a minor or a person who is of unsound mind is void. This is because such persons lack the legal capacity to contract.

2. Agreement with Unlawful Consideration or Object [Sec. 23]

If the consideration or the object of an agreement is unlawful (such as an agreement to commit a crime), the agreement is void.

3. Agreement under Bilateral Mistake of Fact [Sec. 20]

When both parties to an agreement are under a mistake of fact which is material to the agreement, the agreement is void.

4. Agreement with Unlawful Part that Cannot Be Separated [Sec. 24]

If the consideration or object of an agreement is partly unlawful, and the unlawful part cannot be separated from the legal part, the entire agreement is void.

5. Agreement without Consideration [Sec. 25]

As a general rule, an agreement made without consideration is void. However, the law provides some exceptions, such as agreements made out of love and affection between close relatives, or promises to pay time-barred debts.

6. Agreement in Restraint of Marriage [Sec. 26]

Any agreement which restrains the marriage of any person, except in the case of a minor, is void.

7. Agreement in Restraint of Trade [Sec. 27]

Every agreement by which a person is restrained from exercising a lawful profession, trade, or business of any kind is void.
Exception: A seller of goodwill may agree not to carry on a similar business within reasonable limits, to protect the buyer’s interest.

8. Agreement in Restraint of Legal Proceedings [Sec. 28]

Any agreement that restricts a party from enforcing their rights through legal proceedings in the courts is void. Similarly, if an agreement limits the time within which rights can be enforced, or extinguishes the rights of a party after a fixed period so as to restrict legal enforcement, it is void to that extent.

9. Agreements with Uncertain Meaning [Sec. 29]

An agreement whose meaning is uncertain, or not capable of being made certain, is void.

For instance, if A agrees to sell “a hundred tons of oil” to B, but the type of oil is not specified, the agreement is void because it is vague.

11. Agreements by Way of Wager [Sec. 30]

Agreements made by way of wager are void. In such agreements, the outcome depends on an uncertain future event, and neither party has control over the event. For example, betting on the outcome of a cricket match is a wagering agreement and hence void. The Act also states that no suit shall be brought for recovering money won on a wager or entrusted for the purpose of a wager.

12. Agreements Contingent on Impossible Events [Sec. 36]

If an agreement is dependent on an event which is impossible to occur, such an agreement is void. For example, an agreement to pay money if a dead man returns alive is contingent on an impossible event, and therefore void.

13. Agreements to Do Impossible Acts [Sec. 56]

According to Section 56, an agreement to do an impossible act is void. Impossibility may exist:

• right at the time of entering into the contract,
• or it may arise later, or
• after the contract has been formed but before it is performed.

For example, an agreement to discover treasure by magic is void from the beginning, while a contract to deliver goods across the border that later becomes closed due to war also becomes void.

14. Reciprocal Promises Involving Legal and Illegal Acts [Sec. 57]

Where two sets of promises are made — one lawful and the other unlawful — the law will enforce only the legal part. The part which involves an illegal act becomes a void agreement.

Illustrations (Examples of Void Agreements)

Marriage dissolution agreement:

Kamala promises to lend ₹50,000 to Ramesh in consideration that Ramesh will get Kamala’s marriage dissolved and then marry her. This is void, as it involves an unlawful object.

Horse already dead:

Sohan agrees with Mohan to sell his black horse, but unknown to both, the horse was already dead at the time of the agreement. This is void due to impossibility.

Sale of goodwill with absolute restriction:

Ram sells the goodwill of his shop to Shyam for ₹4,00,000 and promises never to carry on business forever and anywhere in India. This is void because the restraint of trade is unreasonable.

Restraint of legal proceedings:

Prakash and Girish enter into an agreement that neither will file a legal case against the other without mutual consent. Such an agreement is void as it restricts legal proceedings.

Conclusion

In summary, not every agreement qualifies as a valid contract. Agreements may be void, voidable, or become void contracts depending on the presence or absence of essential elements like free consent, lawful consideration, lawful object, and certainty. The Indian Contract Act expressly declares several types of agreements as void to safeguard fairness, legality, and public policy. Understanding these distinctions is crucial, as it helps determine the enforceability of rights and obligations under the law.

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