Introduction:
Contracts are governed by the Indian Contract Act, 1872 in India. A contract is voluntarily created civil obligation which occurs between two parties after fulfilling some essentials of the contract. The law of contracts does not cover all the contracts. Some contracts still remain out of the purview of the law of contracts because they do not fulfil the prerequisites of a contract.
A contract is an agreement between two parties which is enforceable by law. A contract is an agreement, an agreement is a promise and a promise is an accepted proposal. The Contract Act, 1872 deals with the validity of the contract, void contract, voidable contract and other ranges of contracts. The act specifies the grounds on which a contract is binding by law, when it is absolutely valid or when absolutely invalid and when a contract is a void contract.
The aim of these provisions under The Contract Act is to ensure fairness in the process of making a contract and entering into a contract. It protects the parties from being prey of ambiguous contracts or unfair deals, or being at an unjust disadvantage or prevents from entering into a contract contrary to the law.
Void Contract
Void contract is defined in Section 2(j) of the Indian Contract Act,1872 as a contract which is simply not enforceable by law. A contract becomes void when it ceases to be enforceable by law. It is possible that while entering into a contract it was valid and subsequently it became void. It just depends on the essentials of a valid contract. Unless the essentials or requirements are fulfilled it is a justifiable contract and when not fulfilled the contract can become void.
A contract does not exist if it’s a void contract. The law cannot enforce any legal obligation to either of the parties. The grounds for a void contract are incompetency of the parties to contract, unlawful means, supervening impossibility, illegal act and so on. For example, a contract between a drug dealer and a buyer is a void contract as it includes an illegal act that is selling of drugs.
The two types of void contracts are as follows:
- Void ab initio- These contracts are unenforceable by law from the beginning. There is no second thought about the validity of such contracts. For example, a minor entering into a contract is a void ab initio contract as a minor is not competent to enter a contract.
- Void due to impossibility of performance- It is a commonly recognized ground for termination of contracts. It is when duties and contractual obligations of a party cannot be attained under normal circumstances. For example, Y agrees to sell a house to Z which is not under his possession. Here Y and Z entered into a contract whose performance is impossible.
Legal Provisions
1. Agreement with bilateral mistake is void-
This provision states that when the parties to a contract are under a mistake related to a fact crucial to the agreement, the agreement is said to be void. For example, X agrees to sell a cat to Y. at the time of the agreement the cat died, neither X nor Y was aware of this fact. Then this agreement is void and there is no contract at all, the contract is void due to mistake of fact. Therefore, an agreement with a bilateral mistake is void. [1]
2. Agreement having unlawful object and consideration are void-
When an object or consideration is forbidden by law then object or consideration of such nature is unlawful and if it is used to make an agreement, such agreement will be void.[2] The objects or considerations of such nature if permitted would overpower the provisions of law or are fraudulent or involves injury to property or persons or are not in favour of the public policy.
If either object or consideration of an agreement is illegal the contract is void such as fraudulent agreements which may cause financial loss to a person. However, if the legal part of the contract is kept distinguished from the illegal part and it is still enforceable.
3. Agreements without considerations-
This provision states that an agreement made without any consideration is a void contract unless-
(i) it is a gift made out of love and affection and is communicated in writing and is registered under the law.
(ii) it is a compensation to someone who has already deliberately done something for the promisor
(iii) it is an agreement to pay some time- barred debt [3]
4. Agreement in restraint of marriage of any major person is void-
Any agreement that is in restraint of marriage of a person other than a minor is void. As the law provides the freedom to choose their marital partner to every person. It is the policy of the law to demoralize the agreements that restrain freedom of marrying someone of own choice. The restrain can be absolute or partial. If a person is restrained from marrying at a particular time or marrying to a particular person, such agreement will be void. [4]
5. Agreement in restraint of trade is void-
Any agreement by which someone is restrained from exercising a specific trade or occupation or business is void. It is the policy of the law to protect the right of an individual to carry a business or occupation or trade, given that it is not illegal in nature. [5]
There is an exception laid down in this section pertaining to the sale of goodwill. It states that a buyer is a restraint from continuing similar business or trade with other sellers.
6. Agreement in restraint of legal proceedings is void-
Any agreement which restrains a person’s rights from enforcing under regular proceedings in the ordinary courts or tribunals is void. [6] Also, any agreement which limits the time within which the contract rights may be enforced is void. Enforcing legal rights is a fundamental right of a person and no one can be restrained from that right. It is for the public good.
7. Agreement whose terms are uncertain are void-
This section states that an agreement, terms of which are uncertain, based on uncertain occurrences or events are void except in the cases like horse races.[7] It is a necessary element of a contract that all the terms of the agreement must be clear, unambiguous and properly defined to give courts a practical meaning. An agreement to agree in future is void because it is uncertain that in future the parties will be able to agree or not.
The uncertain part will not be binding in nature but the certain one will be of binding nature. Basically, wagering agreements such as gambling or betting are not enforceable in the court of law and hence are void in nature.
Voidable Contract
Voidable contract is defined in Section 2(i) of The Indian Contract Act 1872 as an agreement which is enforceable on the part of one party and unenforceable by the other party is a voidable contract. Voidable contracts are valid unless one party sets it aside. Voidable contracts occur when one of the party is misled or tricked to enter a contract like lack of free consent. Either one party or both the parties can decide to make the contract void.
The grounds to decide whether a contract is voidable at the option of either of parties depends on the factors like coercion, misinterpretation, undue influence, fraud and so on. The aggrieved party can claim for the damages and it gets to decide whether or not make the contract void. If it decides not to make the contact void then the other party will not be liable to pay the compensation and the contract will work as a valid one.
For example, Z forces A to sell his house at an extremely low price keeping A on gunpoint. A does so in the fear of death, then this contract is voidable and A can make it void if he wants, as he was coerced into this agreement. There was no free consent.
Legal Provisions
1. Voidability of agreement without free consent-
When the consent to an agreement is given under undue influence, coercion, misinterpretation and fraud by a party then such contract is voidable. Free consent is an essential requirement of a contract and in absence of that contact is voidable at the option of the aggrieved party. [8]
2. Prevention of performance by one party-
When a contract is based on a reciprocal promise and the other party prevent it from performing the obligations under the contract then the contract becomes voidable at the option of the party who was prevented from performance [9]. For example, X and Y agreed that Y will perform some work for X for a certain amount of money. Y is willing to do the work but X prohibits him from doing so. Then this contract becomes voidable at the option of Y.
3. Failure to perform in a fixed time where time is essential-
There are certain contracts where time is crucial and thus they need to be performed in a specific time. When there is a failure of performance in that specific time then the contract becomes voidable at the option of the resentful party. [10] The person who himself held-up the contract cannot avoid the contract on the delay.
4. Consequences if recession of voidable contract-
When the aggrieved party rescinds the contract then the other party need not perform any obligations related to the contract. The person who rescinds the contract, if received any benefits from the other party must restore such benefit to the party whom it was received. [11]
Case Laws
- Bawlf Grain Co. v. Ross [12]
In the case of Bawlf Grain Co. v. Ross, it was seen that an intoxicated person entered into a contract when he was under the influence of alcohol. He did not perform the obligations of the contract afterwards when the price of wheat increased. This was a judgement which held that any person if enters a contract when intoxicated is a voidable contract on the part of the aggrieved party.
- Punit Beriwala v Suva Sanyal , 1998 [13]
In this case, it was established that an agreement to agree in the future is void. Where there is no certainty whether the parties will be able to agree in future or not then the contract cannot be held valid according to Section 29 of the Indian Contract Act 1872
- Nicolene Ltd. v Simmonds , 1953 [14]
It was seen that where there is a part or a clause of the contract is uncertain and rest of the contract is certain, then such part which is certain will be held binding on the parties and rest of the uncertain part will be quashed.
- Gherulal Parakh v. Mahadeodas Maiya And Others [15]
It has been laid down by the Supreme Court, in Gherulal Parekh v. Mahadeo Das that though a wager is void and unenforceable it is not forbidden by law. Hence a wagering agreement is not unlawful under section 23 of the Contract Act and therefore the transactions collateral to the main transaction are enforceable.
Differences
1. Void contracts are invalid or unenforceable from the very beginning but voidable contracts are invalid when declared so by one of the parties.
2. In case of a void contract the performance is not possible, whereas for voidable contract performance is possible as well as valid unless declared invalid by either of the party.
3. A void contract is hypothetical/ non-existent in the eyes of law can not be upheld by any law, on the other hand, a voidable contract is an existing contract and is binding in nature to at least one party involved in the contract.
Conclusion
A contract must be a valid contract to secure the enforceability and performance as void contracts cannot be enforced. On the other hand, voidable contracts may be invalidated at the option of the suffering party. The provisions made by law are to protect minors and people of unsound mind who usually are tricked by fraudulent schemes. In cases of civil law, judicial precedents are also extremely considerate in elucidating any ambiguities in the law. Overall, voidable contracts and void contracts not only distinguish the terms, but they lay down the foundation for an invalid contract, which is extremely significant.
References:
[1] (Section 20), Indian Contract Act, 1872
[2] (Section 23 & 24), Indian Contract Act, 1872
[3] (Section 25), Indian Contract Act, 1872
[4] (Section 26), Indian Contract Act, 1872
[5] (Section 27), Indian Contract Act, 1872
[6] (Section 28), Indian Contract Act, 1872
[7] (Section 29,30 & 36), Indian Contract Act, 1872
[8] (Section 19 & 19A), Indian Contract Act, 1872
[9] (Section 53), Indian Contract Act, 1872
[10] (Section 55), Indian Contract Act, 1872
[11] (Section 64), Indian Contract Act, 1872
[12] Bawlf Grain Co. v. Ross (1917, 55 S.C.R. 232) https://scc-csc.lexum.com/scc-csc/scc-csc/en/item/8075/index.do?site_preference=normal
[13] Punit Beriwala v Suva Sanyal, AIR 1998 (Cal 44) https://indiankanoon.org/doc/1206076/
[14] Nicolene Ltd. v Simmonds, 1953 https://www.lawteacher.net/cases/nicolene-v-simmonds.php
[15] Gherulal Parakh v. Mahadeodas Maiya And Others (1959 AIR 781, 1959 SCR Supl. (2) 406) https://indiankanoon.org/doc/930662/
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