Discuss the grounds of void contract under Nepalese Contract Act by illustrating the cases. Any contract which is not enforceable by law is said to be void. A void contract is one which has no legal effect whatsoever owing to the fact that a transaction which is void. Even if they satisfy some of the conditions of a valid contract, they are not enforceable. In the eye of law such contract is no contract at all. There are some contracts which have been declared as void by section 13 of Nepalese Contract Act 2056.
Section 13(a) mentions about contract in restraint of trade. The act says that a contract preventing anyone from engaging him/herself in a profession or trade which is not prohibited by prevailing law shall be void. This means any contract by which one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void. Nordenfelt v. Maxim Nordenfelt Guns and Ammunition Co. provides a good example for this. Nordenfelt had a machine gun manufacturing business. He sold the business, Maxim Nordenfelt.
He entered into a restrictive covenant by which he could not engage in the trade of manufacturing guns, explosives or ammunition or engage in any competing business for a period of 25 years. Nordenfelt later entered into an agreement with another gun company. From what is applied in this case, it seems that the restraint was reasonable in the interest of parties and in public interests. The contract was considered reasonable and valid. However, we now have reached a period when it may be said that science and invention have almost annihilated both time and space.
Consequently there should no longer exist any cast-iron rule making void any agreement not to carry on a trade anywhere. The portion of his business which consisted of manufacturing guns and gunpowder explosives was one which would almost altogether be with Governments, foreign as well as at home, and wherever carried on would necessarily be in injurious competition with the respondents; nor does the substitution of a company for the appellant in the manufacture of guns and ammunition appear to injuriously affect the public interest. One cannot be restrained from doing any lawful business. There however are some exceptions.
1. A contract preventing the seller from engaging him/herself in a profession or trade at the time and place as mentioned in the contract concluded between the buyer and the seller on selling and buying of the goodwill of any trade is valid. For an example, when Meteor sells its business along with its goodwill to Thumps, Meteor may make an agreement with Thumps not to carry on the business in competition with Thumps for 2 years and within the 100 kilometers range of Thumps’ business location. Such a contract if imposes a reasonable restriction on the seller’s right to carry on the business, is valid.
2. A contract concluded among partners in preventing their engagement in any trade or business, other than those of the partnership firm similar to those of the partnership firm or any other trade or business together with other competitors belonging to the same kind of trade or business as long as the partnership continues is also valid. For an example, partners of Mayos can enter into a contract to carry on only the agreed business of the firm and restraining each other from carrying on the same or any other business with Wai-Wai while they are partners. 3.
A contract is valid when it is concluded among the partners in preventing them from engaging in a trade or business under the partnership firm for the specified time or place after being separated from the partnership. Say, Raman is an outgoing partner of Bajaj then a contract is valid if it restricts him from carrying out any business with Yamaha for 6 months. 4. A contract is valid when it prevents any individual from receiving the service of any such agency, company, firm, individual or competitor of such organization for the specified period of time after the retirement from service or during the service of such organization.
It is a contract of service under which an employee agrees to serve a particular employee for a specified period and that he will not serve any other competing firm or person during the period he is employed or for a specified period after retirement from the service. E. g. , Mr. K Kumar works in Coke factory. If the agreement is made that during his work here he is not allowed to work in Pepsi factory or after his retirement also he is not allowed to work in Pepsi factory for 2 years then this contract is valid not void.
Section 13 (b) talks that contracts restricting marriages other than those prohibited by the prevailing law is a void contract. The prohibited marriages can be marriage with minor, bigamy etc. Beside these, the contract which restricts a person’s freedom to marry, or marry any person of his choice is against public policy and is void. E. g. , Mary’s father gives her $200000 in return for getting into a contract to never to marry. This is a general restraint on marriage and it is unenforceable. The law looks with disfavor on such attempts to limit the right to marry, even with the consent of the person subject to the prohibition.
Mary’s father cannot sue her for the return of $ 200000 on the day that she marries someone. Section 13 (c) states that a contract preventing anyone from enjoying the facilities already being enjoyed by general public is a void contract. Every individual has a right to enjoy the facilities as provided to the public on the ground of law or tradition. So if a contract is concluded with the intention to restrain anyone from enjoying facilities, the contract is void. For an example Gopal cannot enter into a contract with Hiten restricting him the use the public tap for getting a deal finalized.
Public tap is a general property. A contract regarding this restraint is void. Section 13 (d), A contract seeking to prevent the legal rights of any person from being enforced by any government office or court is void. If the contract restricts a party absolutely from enforcing his contractual rights by bringing legal proceedings through a court of law, the same is void. An agreement to oust the jurisdiction of a court is opposed to public policy and the same is void. For an example, by forming a contract, Rajesh could not be restricted from taking a legal proceeding.
However, there could be a contract mentioning that when there are disputes, the cases shall be referred to arbitration. This is valid. Section 13 (e) A contracts concluded in the matters, contrary to or prohibited by the prevailing law is a void contract. It is a contract to do what has been prohibited by the existing laws like criminal and others. Example, no one can enter into a contract for a prostitution business or smuggling business since these things are prohibited by the law. Section 13 (f) A contract concluded for immoral purpose or against public morality or public interest is void.
If the object of the contract is regarded by the court to be immoral or opposed to public policy, the contract is void. Public policy means the policy of the law at the stated time. In other words, it may be said that a contract, which conflicts with morals of time and contravenes any established interest of society is void against public policy. For an example, if the consideration of the contract requires cheating a general public then such a contract is not acceptable. The act is not moral thing to do so the contract is a void one.
Section 13 (g) A contract which cannot be performed because the parties thereto do not exactly know about the matter in relation to which it has been concluded is a void contract. It doesn’t work if the parties to the contract are not clear of the subject matter for which they are entering into an agreement and because of which it has become impossible to perform, then it is void. Example, Mr. W and Mr. H enter into a contract regarding real estate business. Both of the parties have no much idea about the real estate business. The object of the contract is also not clear.
This situation calls for the contract to be void. Section 13 (h) states that a contract shall be void when there is a consideration that is impossible to be fulfilled even at the time it is concluded. In other words, impossibility of performance is present from the very beginning then that contract is void. Say for example, two people Ajay and Raj enter into a contract. The consideration in their contract is that Raj is supposed to pay Ajay $1400 and the Ajay is supposed to bring Raj a blue diamond that Ajay saw in his dream. No one can get anything from their dreams.
The consideration is impossible to be performed at the very beginning so this contract is a void contract. Section 13 (i) A contract which is vague as it does not provide reasonable meaning thereof is a void contract. The contracts, the meaning of which is not certain or capable of being made certain are void. It is necessary that there should be no ambiguity about what the parties intend. The terms and conditions of the contract must be clear. The uncertainty may be regarding quantity, quality, price or title of the subject matter.
For an example, Riz company entered into contract with Testine company. Riz Company promised to pay Testine enough food items for a good number of months if Testine got successful in getting the work done of Riz. Here the terms are ambigious. ‘enough food’ and ‘good number of months’ are not certain. This unclear and ambigious objects make the contract void. Section 13 (j) focuses on the contracts with people that lack capacity to contract. A contract concluded by incompetent person is a void contract.
This means, contracts made by the person who are not competent to make contract under law like minor, person of unsound mind or person disqualified by law is a void. Example, in case of Hauer v. Union State Bank of Wautoma, The issues arose out of a loan made by Union State Bank of Wautoma to Kathy Hauer. The Bank appeals from a judgment which (1) voided the loan on the grounds that Hauer lacked the mental capacity to enter into the loan (2) required the Bank to return Hauer’s collateral and (3) dismissed the Bank’s counterclaim which sought to recover the proceeds of the loan from Hauer.
Because it was concluded that there was evidence in the record to support the jury’s findings that Hauer was mentally incompetent at the time of the loan and that the Bank failed to act in good faith in granting the loan, the court affirmed. Finally, Section 13 (k) of the Contract Act states that contracts concluded with an unlawful consideration or objective is void. For an example, Robert hires Dunlop to kill his wife in return for $ 5000. Dunlop takes the money and doesn’t kill Robert’s wife as well.
In this case Robert cannot go to the court as well because the consideration here is not lawful so he can do nothing about it. Thus the unlawful considerations make the contract void. In conclusion, according to the Contract Act, contracts shall be void if the contract is preventing anyone from engaging in his profession with some exceptions, restraining marriages, preventing from enjoying facilities, preventing legal rights, contradicting prevailing law, taking immoral purpose, unclear object, impossible performance, ambiguous, incompetent party and taking unlawful consideration.