Void and Voidable Contract under the Indian Contract Act, 1872

Void and Voidable Contract under the Indian Contract Act, 1872

Introduction

A contract is an agreement between two or more parties or entities from which legal protection in a prospective business deal. In the court of law, an agreement can only be protected if it is enforceable, which can only be possible after the agreement meets certain terms and conditions to become a valid contract. And in India, these conditions are fulfilled under the Indian Contract Ac,1872.  The contract is defined under section 2(h) of the Indian Contract Act 1872, which read as, “An agreement enforceable by law is a contract.” Here Enforceable stand for capable of being enforced (execute) in a Court of Law. Therefore, the parties have a legal right before the court.

Under the Act, any person who is not minor, of sound mind, and not disqualified from any law time being in force is a person competent in making a contract.

As we know that the contract can be valid, void, or voidable.

A valid contract is those contracts that are enforceable by law or enforceable in the court and contain all the essential elements which are required in the contract. As well as the Void contract are those contracts that are not enforceable in a court of law means parties cannot seek any remedy from the Court on the terms that are mentioned in an agreement which has been made by the parties. And now Voidable Contract is those contracts which are enforceable before the Court of Law at the option of one or more of the parties thereto but not at the option of the other party.

 In the case of Lal man Shukla Vs. Gauri Dutt 1913 11 All LJ 489, The court held that the defendant is not liable to pay to the plaintiff as the essentials of a valid contract according to the Indian Contract Act, 1872 is incomplete, that is Acceptance and Offer. For a valid contract to take place an offer as well as acceptance is necessary. In this scenario, an offer was made, but it was not accepted by anyone. Therefore, the court further stated that as essential elements to a contract are missing, it is not a valid contract

Void Contract

Void Contract is defined under section 2(g) of the Indian Contract Act, 1872, which defines that contracts or agreements that are not enforceable by law are known as void contracts. It is like any agreement between the parties which never existed and thus no obligations by either of the parties have to be fulfilled.

 In the case of Collins v Godefroy, (1831) 1 B & Ad 950; 109 ER 1040

The court held that the agreement that the plaintiffs should attend court was not supported by consideration. This was because the plaintiff was under a public duty to attend court anyway having been subpoenaed. The law would not allow someone to recover expenses incurred in the performance of a duty that they were merely obliged to do anyway by law.

Cause of Void Contract

There are lots of circumstances in which a contract become void, some cause is the following:-

  • Incompetence

In making a contract if one party is incompetent and become legally unable to agree to a contract. This can include one of the people entering into the contract while being incapacitated or unable to make a proper judgment.

  • Unlawful object or consideration

In forming a contract if there is an unlawful object or unlawful consideration involve in the agreement, such a contract is considered a void contract. Like the promise of sex, illicit substance, or anything else causing one or both parties to break the law.

  • Impossibility of performance

In this void contract when it is impossible to perform.it occurs when the contract becomes impossible to carry out by one of the parties.

 For example, if X enters into a contract with Z to sell hazardous Weapon without taking a license into a city, then such agreement will not enforceable under the law of court and this is because the subject matter of the contract was illegal and opposed to public policy.

Voidable Contracts

The voidable contract defines under section 2(i) of the Indian Contract Act,1872 which defines that voidable agreements are those which are valid as long as one of the parties or both the parties can decide to void their agreement. In most case, a voidable contract is related to a situation where there was a lack of free consent from either party but if the party accepts the terms of the contract, it remains valid, and if they don’t, then the contract between them ceases to exist or said voidable contracts.

There are some basic things in which the contract becomes voidable at the option of either of the parties such as coercion, misrepresentation, undue influence, etc. As it depends on the option of one of the parties, the aggrieved party gets to decide whether or not to make the contract void.

For example, if X holds Z at gunpoint and asks him to sell his house at a very low price, due to fear of death, Z does so accordingly. In this condition, Z was forced into an agreement by X and thus Z consent was not freely obtained. Therefore, Z can choose whether he wants to choose to void the contract on this basis.

 In the case of Bawlf Grain Co. v. Ross, (1917) 57 S.C.R 232

Inthe landmark judgment, the Court held that any contract wherein a party is inebriated is voidable at the option of the aggrieved party.

Under some provision, a contract is said to be void contract and they are

The mistake of Fact (Section 20)

In this provision, it states that where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement is void.

 Illustrations; A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the bargain, though neither party was aware of the fact. The agreement is void.

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 A, being entitled to an estate for the life of B, agrees to sell it to C, B was dead at the time of the agreement, but both parties were ignorant of the fact. The agreement is void.  

Unlawful objects and considerations (Section 24)

Consideration defined under Section 2(d) the Act and Section 23 of the Act states that what consideration and objects are lawful and what not

Under Section 24 of the Act it states that If any part of a single consideration for one or more objects, or anyone or any part of any one of several considerations for a single object, is unlawful, the agreement is void.

Illustration A promises to superintend, on behalf of B, a legal manufacturer of indigo, and illegal traffic in other articles. B promises to pay A a salary of 10,000 rupees a year. The agreement is void, the object of A’s promise, and the consideration for B’s promise, being in part unlawful.

Agreements without Consideration (Section 25)

Thecontract without any consideration would be rendered void unless it is a gift made on account of natural love and affection; it is a time-barred debt, or it is compensation to someone who has voluntarily done something for the promisor.

 Illustrations A promises, for no consideration, to give to B Rs. 1,000. This is a void agreement.

A, for natural love and affection, promises to give his son, B, Rs. 1,000. A puts his promise to B into writing and registers it. This is a contract.

 A agrees to sell a horse worth Rs. 1,000 for Rs. 10. A’s consent to the agreement was freely given. The agreement is a contract notwithstanding the inadequacy of the consideration.

Agreements in restraint of marriage (Section 26)

Every agreement in restraint of the marriage of any person, other than a minor, is void.  As it is the policy of the law to protect a person’s freedom to choose their marital partner.

Agreements in restraint of trade (Section 27)

Every agreement by which anyone is restrained from exercising a lawful profession, trade, or business of any kind, is to that extent void.

The exception to this section is pertaining to the sale of goodwill, which restrains a buyer from carrying on similar trade with other sellers.

Agreement in restraint of legal proceedings (Section 28)

An agreement by which a person is restrained to enforce his/her legal rights is void on the grounds of public policy as it is in contravention to the jurisdiction of judicial bodies. 

Exceptions

 1.Saving of a contract to refer to arbitration disputes that may arise. 

2.Saving of a contract to refer questions that have already arisen.

3.Saving of a guarantee agreement of a bank or a financial institution.

Uncertainty/Impossibility of performance (Sections 29, 30 & 36)

In this section, an agreement is an uncertain void, base on uncertain events or impossible occurrence except in certain cases such as that of horse racing. In India like wagering agreements like betting or gambling are not enforceable in the court of law. However, the formation of a contingent contract is perfectly valid.

Under some provision, a contract is said to be a voidable contract and they are:-

Lack of free consent (Sections 19 & 19-A)

Under this section wherein consent is not freely obtained from a party is said to be a voidable contract at the option of that party. Thus, consent is obtained by coercion, misrepresentation, or undue influence, which makes it contrary to free consent by law.

Prevention of performance by the other party (Section 53)

In this case of the voidable contract when a contract is based upon a reciprocal promise, and one of the parties prevents the other from fulfilling his/her obligations under the contract, hence it becomes voidable at the option of the party who was prevented from performing on his/her promise.

Failure to perform in fixed time (Section 55)

In this contract, time is of the essence, and the party needs to perform its task during that period itself. Hence when there is a failure to perform the contract on time then the contract becomes voidable at the option who was aggrieved party.

 Consequences of rescission (Section 64)

It states that if a person on whose option the contract is voidable rescinds the contract, then he must restore the benefit he has received from the other party in the contract and the other party is not obliged to perform any promise it had promised to perform in the contract as a promisor.

In the case of Sinaya Pillai Vs Muniswami Iyyer 22. Mad. 289,291., it was postulated that; “This principle is acknowledged in section 64 of the Indian Contract Act and generally by the Indian Courts as Courts of Equity and good conscience.”

Difference between Void and Voidable Contract
MATTERVOIDVOIDABLE
DefinitionIt means a contract that ceases to be enforceable.It means an agreement enforceable by law by one or more parties.
NatureValid when made subsequently becomes unenforceable.It remains voidable until canceled by the party.
Rights and RemedyNo legal remedyThe aggrieved party has a remedy to cancel the contract
Performance of contractParty can’t demand the performance of a contractIf the aggrieved party does not cancel it within a reasonable time, performance
ReasonDue to change in law or circumstancesIf consent is not obtained freely
DamagesNot availableCan demand in certain cases.
Void and Voidable Contract under the Indian Contract Act, 1872

Also Read: Communication, Acceptance, and Revocation of Offer

Void and Voidable Contract under the Indian Contract Act, 1872

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