Agreements without consideration in Indian Contract Act
Agreements in Restraint of Marriage (S.26)Agreements in restraint of marriage or those, which interfere with the freedom of choice of an individual in matters relating to marriage, are void. As an effect of the agreement, if a person is bound to not marry another individual or it interferes with the person’s freedom of choice then it is void. Example: The case of Lowe v. Peers set a precedent in the law relating to restraint of marriage. In this case, the defendant contended that if he marries any other person except the plaintiff, he would give her 1000 pounds within three months of his marriage. It was held that such an agreement is void.Agreement in Restraint of Trade (S.27) Any agreement that debars any individual from starting or continuing his legitimate trade, business or profession, in return for some consideration irrespective of whether the restraint is partial or general, is void. Even the Constitution of India grants every individual, the fundamental right to carry on any business, trade or profession.Example: Madub Chunder V Rajcoomar: In this case, the Defendant faced competition from Plaintiff due to which he incurred a heavy loss. Consequently, both parties entered into an agreement. The terms of the contract state that if the Plaintiff closes his business then the Defendant would pay him the money that MadubChunder advanced to his workers. Later on, Rajcoomarrefused to pay the money as promised in the contract. Both the parties of the present case were involved in businesses established in Calcutta. As a result, the Plaintiff filed a lawsuit to claim the amount from the Defendant. It was held that such an agreement would be void. A non-compete clause through which an employee signs up to not compete with the firm/employer directly would not amount to ‘restraint of trade’. Exceptions to Restraint of Trade: 1.) Sale of Goodwill: The only exception mentioned in Section 27 of the Contract Act is related to sale of goodwill. Goodwill is an intangible asset of a firm; it is the reputation it has earned over the years among consumers, such that these consumers would continue to consume products or services produced by such a firm. Like other assets, a firm can sell its goodwill as it holds some value. One who sells the goodwill of a business may agree with the buyer of that goodwill to refrain from carrying on a similar business within specified local limits. This would not be an agreement in restraint of trade but it is the right exercised by the buyer of the goodwill. Example: In Chandra v.Parasullah, the plaintiff was the owner of a fleet of buses that used to ply between Pune and Mahabaleshwar. The defendant also had a similar business in the same area. To avoid competition, the plaintiff bought the defendant’s business along with the goodwill, and by contract made him agree not to open a similar business in the area for 3 years. The defendant did not comply and started his business. It was held by the court that the agreement was valid, as it fell within the exception to S.27.2.) Another exception to the rule of limitation on agreements in restraint of trade is provided under the Partnership Act, 1932. The Act lays down three exceptions. These are:a. An agreement with a partner of the firm to not carry out his own business so long as he/she is a partner in the said firm.b. An agreement between partners to not engage in a similar business as that of the said firm within specified territorial and time limits (period of restraint).c. In anticipation of dissolving the firm, the partners may come to an agreement in restraint of carrying out a similar business within specified territorial and time limits so long as this restraint is reasonable. Example: Firm Daulat Ram & Firm Dharm Chand, In this case, the two similar business owners, in a partnership, came to an agreement that only one of their factories would work at a given time and the proceeds will be shared between them. This restraint was held to be valid.Agreement in Restraint ofLegal Proceedings (S.28)Any agreement between the two parties that restricts either or both of the parties (whoever is aggrieved) from seeking remedy from a court of law (or limits the time period within which such a right may be exercised) in case of non-compliance or a breach of contract is a void agreement. It further says, any agreement that extinguishes the rights of any party or discharges either of the parties from liability is a void agreement.There are two exceptions to Section 28, as mentioned in the Act. Agreements in restraint of legal proceedings are valid, if:1. A future dispute or a past dispute is referred to arbitration. That is if there is an arbitration clause in the said agreement.2. Agreements stating the limit of time as per the Limitation Act, 1963 For instance, as per the Limitation Act, 1963, a suit for breach of contract may be brought within the period of three years from the date of the breach.Example: Food Corporation India V New India Assurance Co. In this case, the Supreme Court held that the terms of an agreement should not be so construed as to bar the other party from seeking the remedy of the suit.