Business Law Project

Name: Saniya Raza Tiwana Enrollment No. 01-111091-117 Semester: BBA IV A Submitted to: Sir Azam H. Beg

Dated: December 29th,2010

Acknowledgement

This research report has been prepared during Fall 2010-2011 at Bahria University, Islamabad in fulfillment of Islamic & Pakistan project. It was arguably one of the most thrilling experiences of this semester and I would like to acknowledge all those people who helped me throughout and made this work possible.

Thanks to Allah for giving me the skill as well as the will to survive with my head held high throughout the last four months. To my parents and family who have supported me, my salutes!

To our teacher, Sir Azam.H Beg, for giving us chance and polishing us manifold. It is undoubtedly through his excellent supervision and knowledge during the whole process that has helped me in coming up with this report.

VOID CONTRACTS Looking at the literal meanings of void that is lacking any legal or binding force conveys a clear meaning of the void contracts. The definition of void contract on the basis of its literal meaning can be as below. Void Contracts: void contract is defined as the one that is of no legal effect. A contract that falls under this category cannot be enforced by a party to a contract. Example of void contract: A contract is void where for instance, the consideration for the contract is immoral or where a party enters into a contract under a mistaken belief- although only certain instances of mistaken belief will make a contract void. Example of void agreement: An agreement made by a minor, agreement without consideration, certain agreements against public policy etc. Agreement which become void on account of their being against public policy or against social considerations are not contracts: An agreement, which was legal and enforceable when it was entered in to, may subsequently become void due to impossibility of performance, change of law or other reason. When it becomes void the agreement ceases to have legal effect. all agreements which contravene the public policy are void, whether they be in violation of law or of morals, or tend to interfere with those artificial rules which are supposed by the law to be beneficial to the interests of the society, or obstruct the prospective objects flowing indirectly from some positive legal injunction or prohibition (Treatise on the law of contracts, William W. Story) Public policy is by nature an uncertain and wavering, with varying degrees of habits and fashions of the day, that it is really difficult to determine its limits with any degree of precision. Example: Combination of persons for the purpose of preventing competition at an auction sale. Forestalling: buying and contracting for any of merchandise or victual on its way to the market. Regrating: buying or corn and victual in any market and reselling it with four miles of the place where it is bought.

EXPRESSLY DECLARED VOID AGREEMENT there are certain agreements, which are expressly declared to be void. They are as follows: (1) Agreement where both the parties are under mistake as to a matter of fact[Sec(20)] (2) Agreement entered into by persons who are not competent to contract[Sec(11)] (3) Agreement the object of which is unlawful[Sec(23)] (4) Agreement the consideration of which are unlawful[Sec(24)] (5) Agreement without consideration.[Sec(25)] (6) Agreement in restraint of trade [Sec(27)] (7) Agreement in restraint of marriage [Sec(26)] (8) Agreement in restraint of legal proceedings[Sec(28)] (9) Agreements which are void on account of uncertainty [Sec(29)] (10) Agreements by way of wager [Sec(30)]

(11) Agreements to do impossible acts [Sec(56)] Some discussions on void agreement are as follows: (1)Agreement where both are under mistake as to a matter of fact: When both the parties that bind in an agreement are under a mistake with regard to a subjectmatter, the agreement is declared to be void. An incorrect notion as to the value of the thing which actually forms the subject-matter of the agreement is not to be held as a mistake as to a matter of fact. The mistake must be as to a matter of fact essential to the agreement. For instance a vendor is bound to deliver goods at the price which is set out already in the contract of sale although the cost is increased by the subsequent imposition of an exercise duty. Examples: M agrees to buy a certain cow from N. It is found that the cow was dead at the time of the bargain, though neither party was aware of this fact. The agreement is void. Y agrees to sell Z a specific cargo of helmets supposed to be on its way from Australia to Karachi. It is found that before the day of the bargain, the ship that was conveying the cargo had been tossed away and the helmets are lost. Now neither of the parties was aware of it. The agreement is void. (2) Agreement entered into by persons who are not competent to contract: An agreement entered by a minor or a person of unsound mind or a person disqualified by law. A minor is a person who has not completed his or her 18 years of age. Law acts as the guardian of minors and protects their rights, since their mental capabilities are not mature- they do not possess the capacity to judge the difference between what is good and what is bad for them. Accordingly, where is a minor charged with obligations and the other contracting party seeks to enforce those obligations against the minor, the agreement is deemed as void. A person who does not possess a sound mind or whose mental powers are not arranged or whose mental condition is not under his or her own control. The person with mental illness will have impedance in decision making. Any agreement by person of unsound mind is absolutely void because he has no capacity to judge, what is good and what is bad for him. Thirdly any agreement made by a person who has been disqualified by any in force will be void. Illustration (a) U, 13 years old boy, made an agreement with V to give him 1000k. This is a void agreement. (b) A mentally carked man made an agreement with X to marry her, but this is not a valid agreement. (3)Agreement the object of which is unlawful: According to the Section 23 of the Indian Contract Act, 1872, the object is considered lawful unless it is forbidden by law or is fraudulent or involves or implies injury to the person or property of another or is immoral or is opposed to public policy. It is of utmost importance that the object of the agreement is lawful that is it must be legal. If an agreement does not have a lawful object then such an agreement cannot be enforceable at law.

The object must not be of a fraudulent nature or should not imply injury to any person or any persons property or national assets, the court regards such an agreement as immoral and opposed to public policy. Such an agreement is unlawful ab-initio (from the beginning). Thus the agreement whose object is unlawful is declared void. Example: X agrees to y Rs. 1 lac Y kills Z. Y kill and claims Rs. 1 lac. Y cannot recover from X because the agreement between X and Y is illegal and also its object is unlawful. M lets a flat on hire to N, who is a prostitute, knowing that it would be used for immoral purposes. The agreement is void because the object is unlawful and immoral.

A promises B to drop a prosecution which he has instituted against B for robbery, and B promises to restore the value of the things taken. The agreement is void, as its object is unlawful.

B promises to give 5k to C if he commits a theft in As house. The agreement is void because the object is unlawful.

S promises to give T a loan worth $50 million if he makes a contract to purchase a stolen item or an illegal drug and distribute it as original to disturb the health of people in a particular country.

(4)Agreement the consideration of which is unlawful: The most popular and influential definition of consideration is the given by Justice lush, in Curri. Vs. Misa. According to him A valuable consideration, in the sense of the law, may consist either in some right, interest, profit or benefit accruing to one party, or some forbearance, detriment, loss or responsibility given, suffered or undertaken by the other. According to this definition consideration consists in some benefit to the promisor, or some detriment to the promise.

5) Agreement without consideration: Consideration is the exchange of promises by the parties to the contract or agreement. It can be the payment of money, the delivery of equipment, the promise to do or perform a service or work, the promise not to take an action or not to take or enforce a right. It is one of the most important essentials of a valid contract. Subject to a certain exceptions, an agreement made without consideration is a nudum pactum (a nude or a bare agreement) and is void. When a party to an agreement promises to do something, he must get something in return for it. This something

in return for something is known as consideration. In other words, consideration is the price for which the promise of the other is bought and the promise thus given for value is enforceable. Consideration is the evidence of mutual obligations which the law can enforce. It is the sign and symbol of every bargain. An agreement made without consideration is void, unless: 1) It is a promise to compensate, wholly or in part, a person who has already voluntarily done something for the promisor, or something which the promissory was legally compellable to do, or unless. 2) it is expressed in writing and registered under the law for the time being enforce for the registration of(documents), and is made on account of natural love and affection between parties standing in a near relation to each other; or unless. 3) It is a promise, made in writing and signed by the person to be charged therewith, or by his agent generally or specially authorized in the behalf, to pay wholly or in part a debt of which the creditor might have enforced payment but for the law for the limitation of suits. Examples
A

person gave half of his property to his wife in order to be reconciled with her. Court held that it was due to natural love and affection(Bhiwa and Shivram) Zain agrees to sell his house to Aisam for $20,000. here, Omers promise to pay the sum of $ 20,000 is the consideration for Ahmeds promise to sell the house, and Ahmeds promise to sell the house is the consideration for Omers promise to pay $20,000 A promises for no consideration, to give to B Rs. 1000; this is a void agreement. A, for natural, love and affection, promises to give his son, B Rs. 1000. A puts his promise to B into writing and registers it. This is a contract. A finds be Bs purse and gives it to him. B promises to give A Rs. 50. This is a contract. A supports Bs infant son. B promises to pay As expenses in so doing. This is a contract. (6) Agreement in Restraint of Trade: The constitution of India guarantees that the freedom of trade and commerce to every citizen and therefore section 27 declares 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 no person is at livery to deprive himself of the fruit of his labor, skill or talent, by any contracts that he enters into. It is to be noted that whether restraint is responsible or not, if it is in the nature of restraint of trade, the agreement is void always, subject to certain exceptions provided for statutorily. Example: An agreement whereby one of the parties agrees to close his business in consideration of the promise by the other party to pay a certain some of money , is void, being an agreement is restraint of trade, and the amount is not recoverable, if the other party fails to pay the promised some of money. (Mad hub Chander vs. Raj Kumar). But agreements merely restraining freedom of action necessary for the carrying on of business are not void, for the law does not intend to take away the right of a trade to regulate his business according to his own discretion and choice.

Discussion An agreement to sell all produce to a certain party, with stipulation that the purchaser was bound to accept the whole quantity, was held valid because it aimed to promote business did not restrained it (Mackengie vs. Striramiah). But where in a similar agreement the purchaser was free to reject the goods (i.e. was not bound to accept the whole quantity tendered) it was held that the agreement was void as being in restraint of trade (Sheikh Kalu vs. Ram Saran) (7) Agreements in Restraint of MarriageEvery individual enjoys the freedom to marry and so according to section 26 of the contract act every agreement is restraint of the marriage of any person, other than a minor, is void. The restraint may be general or partial but the agreement is void, and therefore, an agreement agreeing not to marry at all, or a certain person or, a class of persons, or for a fixed period, is void. However, an agreement restraint of the marriage of a minor is valid under the section. It is interesting to note that a promise to marry a particular person does not imply any restraint of marriage and is, therefore, a valid contract. This section enact that agreement in restraint of the marriage of any person, other than a minor is void. In the interest of the society, contracts for marriage are scrutinized with a close and vigilant suspicion of undue influence, fraud or imposition. The law presumes constrictive fraud, on grounds of public policy, in agreements respecting marriages since marriages of a suitable nature are of the deepest importance of the wellbeing of the society, as upon the equality and mutual affection much of their happiness, sound morality, and mutual confidence, hence every temptation of the exercise often undue influence, or a seductive interest in procuring a marriage is suppressed, for there is infinite danger that it may, under the guises of friendship, confidence, flattery or falsehood, accomplish the ruin of person especially females. So the law (a) prevents improvident, ill-advised, and often fraudulent matches; (b) Avoid all such contracts as tend to the deceit and injury, or encourage artifices and improper attempts to control the exercise of free judgment; (c) Discountenances secret contracts made with prevents and guardians, whereby on a marriage, they to receive a benefits (d) Renders invalid certain agreements in restraint of marriage. Examples (a) Alia agrees with Basit that she will marry him only; it is a valid contract of marriage. (b) C agrees with D for good consideration that she will not marry E. It is a void agreement. C agrees with D that she will marry him only; it is a valid contract of marriage.

(8) Agreement in restraint of legal proceedings: Every agreement, by which any party thereto is restricted absolutely from enforcing his right under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights, is void to that extent. Section 28 declares the following two kinds of agreements void: (a) An agreement by which a party is restrained absolutely from taking usual legal

Proceeding, in respect of any rights arising from a contract. (b) An agreement which limits the time within which one may enforce his contract Rights, without to the time allowed by the limitation act. Discussion In a contract of fire insurance, it was provided that if a claim is rejected and a suit is not filed within three months after such rejection, all benefits under the policy shell be forfeited. The provision was held valid and binding and the suit filed after three months was dismissed. (Baroda spinning Ltd. vs. Satyanarayan Marine and Fire Ins. Com. Ltd.) But there are few exceptions to it. Exception 1: This section shell not render illegal a contract by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shell be referred to arbitration and that only the amount awarded in such arbitration shell be recoverable in respect of the dispute so referred. Exception 2: Nor shell this section render illegal any contract in writing, by which two or more persons agree to refer to arbitration any question between them which has already arisen, or affect any provision of any law in force for the time being as to references to arbitration. (9) Agreements which are void on account of uncertainty: Agreements, the meaning of which is not certain, or capable of being made certain, are void (Sec29). Through Sec-29 the law aims to ensure that the parties to a contract should be aware of the precise nature and scope of their mutual rights and obligation under the contract. Thus, if the word used by the parties are/or indefinite, the law cannot enforce the agreement. Examples: (a) N agrees to sell to his white house for rupees five hundred or rupees one thousand. There is nothing to show which of the price was to be given. The agreement is void. (b) Q agrees to sell to W one thousand mounds of rice at a price to be fixed by C. As the price is capable of being made certain, there is no uncertainty here to make the agreement void. (c) H who is dealer in coconut oil only, agrees to sell to I a hundred tons if oil. The nature of Hs trade affords an indication of the meaning of the words, and H has entered into a contract for the sale of one hundred tons of coconut oil. (d) R agrees to sell to S a hundred tons of oil. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty Furthermore; an agreement to enter into an agreement in future is void for uncertainty unless all the terms of the proposed agreement are agreed expressly or implicitly. Thus, an agreement to engage a servant sometime next year, at a salary to be mutually agreed upon is a void agreement. (10) Agreement by way of Wager: Literally the word wager means a bet something stated to be lost or won on the result of a doubtful issue, and, therefore, wagering agreements are nothing but ordinary betting agreements. Thus where A and B mutually agree that if it rains today A will pay B Tk.100 and if it does not rain B will pay A Tk.100 or C and D entered into agreement that on tossing up a coin, if it fall head upwards C will pay D Tk.50 and if falls tail upwards D will pay C Tk.50, there is a wagering agreement.

In Tracker vs. Hardy Cotton, L.J., described a wager as follows: The essence of gaming and wagering is that one party is to win and the other to lose upon a future event which at the time of the contract is of an uncertain nature- that is to say, if the event turns out the other way he will win. Agreement by way of wager is void. Section 30 lays down that agreements by way of wager are void; and no suit shell be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made, Thus, where A and B enter into an agreement which provides that if Englands cricket team wins the match, A will pay B Rs. 100, and if it loses B will pay Rs. 100 to A, nothing can be recovered by the winning party under the agreement, it being a wager. Similarly, whether C and D enter into a wagering agreement and each deposits Rs.100 with Z instructing him to pay or give the total sum to the winner, no suit can be brought by the winner for recovering the bet amount from Z, the stake-holder. Further, if Z had paid the sum to the winner, the looser cannot bring a suit, for recovering his Rs.100, either against the winner or against, the stake-holder, even if Z had paid after the losers definite instructions not to pay. Of course the looser can recover back his deposit if he makes the demand before the stake-holder had paid it over to the winner (Ratnakalli vs. Vochalapu). But even such a deposit cannot be recovered by a loser in the States of Maharashtra and Gujarat where such an agreement is void and illegal. (11) Agreements to do Impossible Acts: An impossible act includes an act that seems to be out of question, something that can never happen. According to Indian Act 1872 An agreement to do an act impossible in itself is void. (Sec, 56 Part-1) Example: (a) X agrees with Y to discover treasure by magic. The agreement is void. [Sec, 56]. (b) P agrees with Q to run with a speed of 100 Kilometer per hour. The agreement is void. (c) C asks D to give him 50k if he makes two parallel lines meet. The agreement is void. (d) Q agrees to pay T Rs.1000 (as a loan) if two straight line should enclosed a space. The agreement is void.

References

[M.L Barron & R.J.A Fletcher, ISBN 0 07471172 5, edition 4th, title II] [Azam H Beg, Lecture Notes at Bahria University 2010] [Barister A.G Choudhary, The Mercantile Law] [Sir Dinshah Fardunji Mulla, The Contract Act 1872, Published in 1999, IX of 1872] [Ahsan Sohail Anjam, The Contract Act 1872, Published in 1999, update version] [Mullah, DF, The Contract Act] [Robert W. Emerson, Business Law, Year of publication 2009, Google Books] [M.G Shukla, Mercantile law, edition 3rd] [Dr. Varma & Agarwal, Company Law, V287C,Published in 1996] [Nazir Ahmed Shaheen, Practical Approach to companies Ordinance, 1984] [Khalid Mehmood Cheema, Business Law edition, Revised edition 2010] [P C Tulsian, Business Law, Google Books] [Thomas Conyngton, Business Law, Year of publication 1920, Google Books] [Peter Handley, Business Law: an active learning approach, Year of Publication 1996, Google Books] [Richards, P., Law of Contract, 4th ed., Pitman Publishing, London, 1999] [Hurriyah El Islamy, E-Business: An Islamic Perspective, AS Noordeen, Kuala Lumpur, 2002]