AGREEMENTS IN THE RESTRAINT OF TRADE; AGREEMENTS IN THE RESTRAINT OF LEGAL PROCEEDINGS; AMBIGUOUS AND UNCERTAIN AGREEMENTS; THE WAGERING AGREEMENTS

This article is written by Ritika Srivastava of Symbiosis Law School, Hyderabad, an intern under Legal Vidhiya

ABSTRACT

Among the most crucial elements of what we do every day are agreements. Every day, we sign many agreements. Either knowingly or unconsciously, these agreements are made. Agreements grant the parties a variety of legal rights and responsibilities. Therefore, it is essential to comprehend the different kinds of agreements and which ones may be upheld in court in order to defend our rights and fulfil our commitments and keep ourselves out of trouble. Agreements can be of many types; valid agreements, void agreements and voidable agreements. This research is concerned with dealing with agreements, essentials of a valid, void, and voidable agreements, and compacts a brief understanding about void agreements. This covers the Indian Contract Act, 1872[1], and its provisions concerning contracts, void contracts, trade agreements, common law, exceptions to trade agreements, partnership act, agreements in restraint of proceedings of law, exceptions to restraintment of legal proceedings, ambiguous and uncertain agreements, and case laws pertaining to certain as well as uncertain agreements. For the purpose of comprehending the legal provisions and their ramifications, the Indian Contract Act, 1872, and pertinent case laws are qualitatively analysed. Having rendered decisions pertaining to valid and invalid agreements, the participants are judges and legal specialists. India’s legal system provides the background. The conclusions suggest that the Indian Contract Act, 1872, contains comprehensive guidelines for contracts, null and invalid contracts, and contracts that restrict commerce. Except in some cases, such sales of goodwill and partnership agreements, the study’s conclusions indicate that agreements aimed at preventing competition are usually null and invalid.

KEYWORDS

Agreements, Contracts, Restraint of Trade, Legal Proceedings, Ambiguous, Uncertain, Wagering, Valid, Void, Voidable, Indian Contract Act, Section

INTRODUCTION

A legally enforceable contract is one that is considered valid. Both parties are legally bound to each other when there is a contract. Referring to Section 2(h) of Indian Contract Act (ICA), 1872, it is said a contract is any form of agreement which is enforceable in court. It is defined as “every promise and every set of promises forming consideration for each other becomes an agreement” in Section 2(e) of the ICA, 1872. A legitimate contract is one that is founded on commitments made by both parties and is enforceable by law. For an agreement to be considered legitimate, there has to be both an offer and an acceptance.

An offer might be positive or negative, indicating that the promisor intends to do something or not. It is the promisor’s mental expression. Actions or in actions should be used to show and communicate acceptance of this offer. Promisee, or one, who is accepting offer, expresses assent when they accept. Once the opposite party approves the proposal and properly notifies the proposer, provided that the proposal’s consideration and object are legal, it becomes a legally enforceable agreement. Establishing legal partnerships is the parties’ purpose.

AGREEMENT

Referring to Section 2(e), an agreement consists of all promises made and all promises made together that constitute the basis for one another. A proposition that has been accepted is referred to as an offer in this context. A commitment or promise made by one party to another is known as an agreement. It involves an offer that is made and accepted by two parties. Simply, agreement is made where one party makes an offer and same is accepted by other party.  It is made up of two or more parties. Only when all the necessary conditions are met does it become an agreement. There needs to be something to think about.

ESSENTIALS ELEMENTS OF AN AGREEMENT

Parties: An agreement may only be formed by two or more parties.

Offer/Proposal: One side has make proposal or offer to the other.

Recipient: The proposal’s recipient(s) must comprehend all of its terms, essentials and elements in their entirety.

Acceptance: The offeree, or the individual to whom the offer has been made, must consent to all of the conditions of the proposal and accept it.

Promise: Upon acceptance, the proposal either becomes a promised or an accepted proposal. A proposal is not the same as a promise; a promise only materialises upon acceptance.

Consideration: When an agreement is approved, the price for the promised payment is included in the consideration.

ALL CONTRACT ARE AGREEMENTS BUT ALL AGREEMENTS ARE NOT CONTRACT

Here is to see that, a legal enforceable agreement is considered as contract. Unless an agreement that’s is enforceable by law, then it cannot be considered as contract. An agreement that is recognised by both parties and has legal enforceability is called a contract. Each and every party engaged is granted specific rights as well as duties that they must carry out. So, it is concluded that not every agreement can be considered as contract, but contract is officially an agreement.

ESSENTIALS OF THE CONTRACT[2]

More than one Party: In contract to be enforceable, there should be two parties and the contract has to be signed by both parties.

Lawful Obligation: Contract should have to be entered with goal of creating lawful obligation between the parties. Social agreements and commitments do not impose any legal responsibilities on any party, so they are not regarded as contracts.

Free Consent: Agreement between parties should have free assent by both parties.

Competent: The parties should have to be competent. People incompetent to enter into contract are people of unsound mind, should be of legal age of majority, and should not be legally excluded from entering into contracts, as mentioned in Section 11 of the Indian Contract Act.

Lawful Consideration: The “quid pro quo” concept, contracts should include lawful consideration, or can be said as something in exchange.

Legal factor: Anything that is not prohibited by law is considered a legal factor according to Section 23 of the Contract Act. 

TYPES OF CONTRACTS[3]

Valid contract: It is one that satisfies all legal requirements; if any one of these requirements is or is not met, like contract is void, illegal, voidable, invalid or unenforceable.An agreement which meets all legal requirements is considered valid; if any of these are absent, contract is void, voidable, illegal, voidable, invalid or unenforceable.

Void Contract: Per Section 2(j), contract that is no longer enforceable by law is considered void; it is a nullity that has no legal consequences. It should be noted that a contract is not void at the time of its formation; rather, it’s valid and binding upon parties at the time of its formation, but after some reasons, it becomes not enforceable is thus treated as void. Contract might become void because of impossible performance, change in law, as well as some other circumstance.

Voidable Contract: Contract that is legally enforceable at her request of one or more parties involved, but not as per request of other, can be said as voidable, as stated in Section 2(i) of the Contract Act. Therefore, a contract that is voidable is one that the party who was wronged may choose to have set aside or rejected. It is a legally binding agreement unless it is avoided or set aside by the party with the right to do so.

RESTRAINT OF TRADE[4]

Section 27 of the Act declares an agreement in restriction of commerce to be invalid. That is, it is null and void to enter into a contract that prevents someone from beginning or pursuing their trade or career in exchange for payment. Therefore, any arrangement with another party that prevents a person from dealing in whatever way or anywhere they want, provided that other party gains from their termination of trade or profession, would be deemed an agreement in restriction of commerce. All agreements in restriction of commerce are null and void, with the exception of two that we shall cover below. The Partnership Act and the Sale of Goodwill are the two exceptions.

The history of tension between free markets and contract freedom provides the context for delegitimizing a trade restrictive pact. To guarantee the contract’s independence, parties would have to consent to reduce competition by approving trade agreements.

Nordenfelt v Maxim Nordenfelt Guns and Ammunition Co. Ltd.

According to the test of reasonability, a trade restraint agreement is legitimate if the party enforcing the restriction is attempting to safeguard a legitimate interest. The amount of constraint is limited to what is required to safeguard this interest. The public interest is not at odds with restraint.

Restraint of trade agreement refers to trade when one party consents, in writing, to the other party’s limitation on their ability to carry out their trade with third parties without that other party’s express consent. Agreements that impede trade are void and unenforceable in India, as per to Section 27 of Indian Contract Act. Any contract preventing the other party from engaging in their authorised trade, business, or profession in any way is null and invalid, according to Section 27. Article 301 of the Indian Constitution states that every person has right to freedom of trade as well as commerce. Right to freedom of trade or commerce are safeguarded within the Indian Constitution.

Madhub Chunder v. Rajcoomar Doss

The court ruled that the parties’ agreement was null and invalid in this instance, holding that refraining from engaging in a permitted profession, trade, or business did not imply total limitation. Rival traders made up the plaintiff and defendant. In order for the plaintiff to discontinue his business in that region, the defendant agreed to pay a certain amount of money. The plaintiff complied as a consequence, but the defendant declined to pay. The agreement was declared invalid by the court in its decision. The court used as evidence the use of the word “absolutely” in Section 28, which addresses the limitation of judicial processes.

EXCEPTIONS- AGREEMENTS IN RESTRAINT OF TRADE[5]

• Sale of Goodwill: In the 1810, Cruttwell v. Lye case, it was stated, selling goodwill to third party only entails the risk that a former client may visit the same location. The complete advantage of the company’s association status, according to Lord Macnaghten in Ann Trego v. George Stratford Hunt, 1869. This view was likewise adopted by the Calcutta High Court in the 1917 case of Parasullah Mullik v. Chandra Kanta Das. Protecting the interests of the person who bought the goodwill is the primary goal. Enforcing limitations on vendors is crucial. A written agreement between the parties must specify the upper extent of these restrictions.
• Partnership Act: As per 1934, in case Firm Daulat Ram v. Firm Dharm Chand, it was said that Section 11 of Partnership Act stipulates, partners’ ability to do business outside of their own firm while employed by a company shall be restricted.

AGREEMENTS IN RESTRAINT OF LEGAL PROCEEDINGS

A contract that prohibits one or both of the parties from suing the other in the event that the other party breaches the terms of the agreement is null and invalid. Per Section 28 of the Indian Contract Act, an agreement is said to be null and unenforceable if it limits the period within which an aggrieved party may file a claim for breach of contract with a competent court or tribunal, or if it prohibits the said party from doing so. It further states that an agreement can be said as null and void if it releases any party from obligation or abolishes the rights of any party. Simply put, any agreement is null and void if any of the following apply:

1. It makes it unlawful for a party to file a complaint with the appropriate court or tribunal if they believe their rights have been infringed.

2. Set a time limit on how soon the harmed party may file an application with such court or tribunal.

3. With agreement, exclude party from its accountability.

National Insurance Corporation Ltd. v. Sujir Ganesh Nayak and Co

It was decided, insurance policy’s clause exempting insurer’s liability of loss as well as damage as long as claim held before specified period from beginning of loss as well as damage were not affected by Section 28, even clause’s specific period was short than statute’s prescribed period for filing a suit for that purpose. The aforementioned modification has the effect of nullifying principle established in aforementioned decision of the Supreme Court in way of Section 28, as modified by the Modification Act, 1997, as of amendment’s effective date. Due to the reason of first paragraph of amended Section 28, any condition of contract  stipulating right to claim would be barred if claim has not been not raised before specific date from incurring loss or damage and would be void under amended Section 28, effective from the date of amendments.

AMBIGUOUS AND UNCERTAIN AGREEMENTS[6]

When provisions of an agreement are held ambiguous and cannot be known, then they are invalid as per Section 29. Example: A consents to sell a massive amount of oil. Since it is impossible to determine the type of oil that was intended, the agreement is null and invalid.An agreement may be unclear if portions of its provisions are unclear or confusing, or if it is not comprehensive enough. As a general rule, there is no legally enforceable contract if the words of the agreement are ambiguous or indeterminate and cannot reasonably be used to determine the parties’ intentions.

Kovuru Kalappa Devara v. Kumar Krishna Mitter

 It was said that the contract’s effect may be granted if its meaning is determined to be reasonably plain. The contract would not be enforceable if this were not feasible. Merely having trouble understanding anything won’t be regarded as unclear. The idea might be stated as follows: in order for a party to be granted a remedy in court for contract violation, the duty must be able to be precisely identified in order to support the remedy. The resulting statute is more adaptable and acknowledges that varying degrees of assurance can be required for the remedies. There might be one of two reasons: either the provisions are not spelt out in detail or the agreement is vague or incomplete. General rules state that if a contract’s provisions are vague or unclear and it is not reasonably reasonable to determine the parties’ intentions, the agreement cannot be enforced in court.

Deojit v. Pitambar

The defendants, who were local residents, entered in bond as security for the sum of “our property, with all the rights and interest,” but it was deemed to be too ambiguous to be implemented. It was insufficient for the defendants’ self-description in the bond as inhabitants of a particular location to prove that their property there was the property under suspicion. It would have been reasonable to refer to the description rather than the undefined statement if it had declared to be owners of the specific property.

It is being argued, if there is no stated restriction of time for performance or one may assumed from facts of the case, that the agreement is too ambiguous to get upheld. According to Carter v. Agra Savings Bank, one document favour to the bank promised to pay a defined amount before given date and comparable quantity each month could not be treated as promissory note as it did not specify how long it was to last or how much was to be paid. The agreement provided by one party to withhold payment of cheque until goods are received is said to be null and void due to ambiguity over the timing of the receipt of the products.

Lani Mia vs Muhammad Easin Mia

In this case, it was held that if a lease renewal covenant is silent on period or rent, it is assumed to be for same duration and rent as like original lease so therefore it is not null and void.

CERTAIN AGREEMENTS[7]

R. Varadaraja Reddiar vs. Francis Xavier Joseph Periaria

Here, was established, an agreement would not be deemed ambiguous simply because it did not specify precise boundaries, survey number, as well as location of property to be conveyed, provided that both parties could reasonably ascertain the identity of the property. An agreement for the selling of land with name of land but without its survey number and location were not void for doubt, according to ruling in Mithu Khan v. Pipariya wali [15].

WAGERING AGREEMENTS[8]

Wagering agreements are deemed unlawful and are not enforceable in any court of law, as stated in Section 30 of the Indian Contract Act. A lawsuit should not be brought in legal forum to collect money purportedly earned from a bet or to punish a party for failing to follow the wager’s outcome.

Gherulal Parakh v. Mahadeodas Maiya

It is a case in which managers of two joint families have formed partnership in order to conduct wagering contracts with like 2 Hapur enterprises, with understanding, they would each bear an equal portion of profit and loss from the transactions. Subsequently, the appellant refuted being responsible for his portion of the loss. The deputy court determined that section 30 of the statute rendered the wagering arrangement the partners had engaged into null and invalid. Following an appeal, the high court determined, even while the parties’ agreement was null and invalid, its purpose nonetheless was legitimate as per section 23 of the same statute, meaning the parties’ relationship continued.

ESSENTIALS OF A WAGER

1. It must be dependent on an uncertain event.
2. There is a mutual chance of gain or loss.
3. Neither parties have control over the event.
4. Must have no other interest other than stake.

An intriguing reading of this decision was that while all unlawful contracts are null and void and cannot be enforced in court, not all invalid contracts are unlawful, immoral, or against public policy. Thus, even if all gambling agreements are illegal and invalid, it’s crucial to check if a wagering agreement is also illegal as under Section 23 of the Indian Contract Act in order to assess its validity.

EXCEPTIONS TO WAGERING AGREEMENTS

Insurance Agreements

A contract of indemnity meant to protect one party’s interest from harm and with an insurable interest is known as an insurance contract. Contrarily, a betting contract is conditional and has no stake in an event occurring or not. Contrary to insurance contracts, which have as their purpose the protection of an interest, wagering agreements are void in nature and aim to speculate for money or its worth.

Skill-based competitions

Since victory in a skill competition demands a high level of expertise and is not based on the likelihood of an unpredictable occurrence, it is not considered a gamble. For instance, crossword puzzles, sporting events, etc. However, if the competition is decided by chance rather than skill—for instance, via a lottery—it would be seen as a bet and invalid.

Contests for horse racing competitions

A gift of more over Rs. 500 towards the prize money in horse racing championships is not illegal, even though certain state governments may permit it. Horse racing was deemed a game of skill by the Supreme Court in the 1996 case of K. R. Lakshmanan v. State of Tamil Nadu, and it was deemed lawful to play for stakes in such a game.

CONCLUSION

Some agreements are unenforceable in court because they go against public policy and interest. These agreements are not illegal, but they are also not legally enforceable. This means that the harmed party will not be able to bring the case before a court or other suitable authority to have his or her rights upheld if any party to the agreement fails to fulfil his or her responsibilities under it. Trade restrictions and court cases are two instances of these agreements.

REFERENCES

1. https://blog.ipleaders.in/agreements-void-for-uncertainty-under-section-29/
2. https://lawtimesjournal.in/wagering-agreements-and-their-enforceability-under-indian-contract-law/
3. https://lawbhoomi.com/limitations-on-freedom-of-contract-under-indian-contract-act/
4. https://blog.ipleaders.in/agreements-in-restraint-of-trade-marriage-and-legal-proceedings/
5. https://www.tutorialspoint.com/uncertain-agreement-section-29-of-the-indian-contract-act-1872

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[1]  https://blog.ipleaders.in/law-of-contracts-notes/

[2] https://lawtimesjournal.in/wagering-agreements-and-their-enforceability-under-indian-contract-law/

[3] https://www.toppr.com/guides/business-laws/indian-contract-act-1872-part-ii/expressly-void-agreements/

[4] https://blog.ipleaders.in/agreements-in-restraint-of-trade-marriage-and-legal-proceedings/

[5] https://blog.ipleaders.in/agreements-in-restraint-of-trade-marriage-and-legal-proceedings/

[6]  https://blog.ipleaders.in/agreements-void-for-uncertainty-under-section-29/

[7]  https://blog.ipleaders.in/agreements-void-for-uncertainty-under-section-29/

[8] https://lawtimesjournal.in/wagering-agreements-and-their-enforceability-under-indian-contract-law/

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