Void Contract

Topics: Contract, Law, Contract law Pages: 5 (1986 words) Published: August 2, 2011
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...
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