Page 43 - DMGT102_MERCANTILE_LAWS_I

Unit 3: Capacity to Contract

made two agreements with B. One by which the rent was stated to be ` 4,500 only and Notes
the other by which B agreed to pay ` 7,500 for services in connection with the fl at. Held,
A could not recover ` 7,500 since the agreement was made to defraud the municipal
authority and thus void [Alexander v. Rayson (1939) IK.B.169].
(iii) Where it is fraudulent. A, being an agent for a landed proprietor, agrees for money without
the knowledge of his principal to obtain for B, a lease of land belonging to his principal.
The agreement between A and B is void as it implied a fraud by concealment by A, on his
principal.
(iv) Where it involves or implies injury to the person or property of another. An agreement
between some persons to purchase shares in a company, with a view to induce other

persons to believe contrary to the fact that there is a bona fide market for the shares, is
void.
(v) Where the court regards it as immoral or opposed to public policy. A who is B’s power of
attorney promises to exercise his influence as such with B in favour of C, and C promises

to pay ` 5,000 to A. The agreement is void being against public policy.

Example:
(i) X agrees to buy from a jeweller certain jewellery to be delivered to him after two months.
In the meantime, the government enacts a law on gold control and prohibits dealings in
gold. When the time for delivery of the jewellery comes the jeweller refuses to deliver the
same. What can X do? He has no cause of action. The contract becomes void when the law
is enacted. Thus, the contract was originally valid but becomes void later on by subsequent
(supervening) illegality.
(ii) A dealer enters into a contract to sell a smuggled item to X. The import of such type of
goods is illegal under the laws of the country. A refuses to deliver the item as promised.
What are the rights of X? The contract is void.

3.5 Agreements Declared Void [Ss.26-30]

The Act declares certain agreements to be void. Some of them (such as the following) have already
been explained: (i) agreements entered into through a mutual mistake of fact between the parties
(s. 20). (ii) agreements, the object or consideration of which is unlawful (s. 23); (iii) agreements,
part of consideration of which is unlawful (s. 24); (iv) agreements made without consideration
(s. 25). Some other agreements which are declared to be void are explained below.

3.5.1 Agreements against Public Policy (Ss.26-28)

An agreement which conflicts with morals of the time and contravenes any established interest

of society is void as being against public policy. Some of the agreements which are against public
policy and have been declared to be void by law. These are as follows:

(i) Trading with enemy: All contracts made with an alien (foreigner) enemy are illegal unless
made with the permission of the government.
(ii) Agreements for stifl ing prosecution. The agreements for compounding or suppression of
criminal charges, and for offences of a public nature are illegal and void. A, knowing that B
has committed a murder, obtains a promise from B to pay him (A) ` 10,000 in consideration
of not exposing B. This is a case of stifling prosecution, and the agreement is illegal and

void.
(iii) Contracts in the nature of champerty and maintenance. Where a person, having no
interest, agrees to maintain a suit on behalf of another against a third party, it is known as

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