Void Agreements versus Voidable Contract

Introduction:

Void agreement in the legal sense means agreement without any legal force, consequence, or effect and which is not binding because of being invalid. We are going to discuss below the following agreements which have been considered as void by “The Indian Contract Act, 1872”. An agreement that is not at all enforceable by law in the above cases shall be treated as void ab-initio.

If either of the parties to the voidable contract decides to rescind the contract, then it has a similar effect as that of a void agreement.  The main reason for adding the provisions of void and voidable contracts is to ensure that people are not taken advantage of as a result of an agreement entered by them unsuspectingly.

Provisions of both void, as well as voidable contracts, play role in case of illegal and immoral practice that is against the public policy.

Meaning

The provision for void agreement is given under section 2(g) of the Indian Contract Act, 1872. This provision states that an agreement that is unenforceable by law is said to be void. 

Whereas, the provision for voidable agreement is given under section 2 (i) of the Indian Contract Act, 1872. This provision states that when an agreement is enforceable by law at the option of one or more parties and not at the option of other or other parties then, such a contract will be treated as a voidable contract. Such type of contract is good and enforceable unless and until it is repudiated by an aggrieved party.

Laws Related to the Topic[1]

Laws related to a void agreement

1. Section 11 of the contract act states that a person who is of unsound mind and a person who is a minor cannot enter into any sort of agreement because such an agreement is void as per the act.
2. Section 20 of the act states that if any fact which is material to the agreement is mistaken by both the parties to the contract, then such an agreement will be considered void.
3. Section 21 of the act states that if parties are under a mistake as to the fact which is essential to the agreement then, such an agreement will be void.
4. Section 23 states that if the object and consideration of the agreement itself are not lawful, then the agreement will be a void agreement. The object and consideration is unlawful if it is forbidden by law, fraudulent, involves or implies any sort of injury to any person, against the public policy, immoral, and would defeat the provisions of any law, if permitted.
5. Section 24 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 then, such an agreement will be void.
6. Section 25 states that an agreement without consideration will be void unless it is in writing or register. Section 25(2) states that an agreement entered by the parties without consideration is void unless it is a promise to compensate a person wholly or in part who has already done something for the promisor voluntarily.
7. Section 26 states that an agreement in restraint of marriage will be void. This section conveys that there should be no interference in the institution of marriage not even of the contracts.
8. Section 27 states that an agreement in restraint of trade is void. This section states that any agreement which restrains any person from exercising a lawful profession, business, or trade is to that extent void.
   Exception: The sale of goodwill is an exception. Another exception is found in the partnership act.
9. Section 28 states that an agreement in restraint of legal proceedings is void. It states that every agreement which restricts any party absolutely from enforcing his rights with respect to any contract by legal proceedings is void to that extent.
   Exception:
   1. If there is an arbitration clause in the agreement of past or future dispute which is referred to as arbitration.
   2. The agreement which states the time limit as per the limitation act, 1963 is also an exception.
10. Section 29 states that an agreement that is not certain and is also not capable of being made certain will be considered as a void agreement.
11. Section 30 states that an agreement by way of wager will be void agreement. Essential characteristics of a wagering contract are as follows:
    1. Mutual chances of gain or loss
    2. Neither party will have control over the outcome of the agreed event.
    3. One feature which distinguishes an insurance contract from a wagering contract is that no party shall have any other interest except for the stake of win or lose.
    4. A wagering contract is based on a future uncertain event.
12. Section 56(1) states that an agreement that is impossible and which cannot take place is a void agreement.

Laws related to a voidable contract

1. Section 19 and 19A mentions the circumstances in which consent may be obtained by either party through misrepresentation, coercion, and undue influence if the other party is not providing the consent freely. In such a situation, the agreement is voidable at the option of the other party, and the coercion, misrepresentation, and undue influence to obtain free consent will be treated as contrary to the law.
2. Section 53 states that a contract becomes voidable at the option of the party who is being prevented by the other party to perform his or her reciprocal promise which is the basis of the contract being established by the parties under the contract act.
3. Section 55 states that in the case of contracts where time is the essence and one of the parties to the contract fails to perform the contract on time, in such cases, the contract becomes voidable at the option of the other party which is aggrieved.
   When a person at whose option a contract is voidable rescinds such contract, then, another party is not liable to perform obligations relating to such contract and at the same time, the person who rescinds the contract must also restore the benefits which he or she may have received if he or she would not have voided the contract.

Case Brief: Madhub Chander V. Raj Commar

Facts of the case:

The plaintiff filed a petition on the ground that the defendant restricted him from trade as per section 27 of the Indian Contract Act, 1872 by agreeing to offer him a certain amount of money if he closed his business in the said locality. Plaintiff was the competitor of the defendant in the business which he did. This is the reason because of which the defendant intended to offer the amount to the plaintiff. But after the closure of the business by the plaintiff, the defendant refused to pay the agreed amount to the plaintiff.

Legal Issues in the case:

1. Whether the agreement between the parties is void or voidable?
2. Whether the restraint of trade was partial or absolute?

Judgment:

The court held that the agreement between the parties in the said case was void. The court also held that the agreement mentioned under section 27 of the act does not necessarily mean only absolute restraint but can also imply partial restriction.

Analysis:

In this case, there was a partial restriction for opening a business in a particular locality. This indicates that there was some sort of restriction to trade. Therefore, this restriction to trade falls under the category of restraint to trade under section 27 of the Indian Contract Act, 1872. In this case, the damage claimed by the plaintiff cannot be given to him as the agreement itself is void.

This case can also be considered a voidable contract because as per sections 19 and 19-A of the act, the defendant obtained the acceptance and consent of the plaintiff through the means of misrepresentation as the defendant was already aware of the fact that if he would not have agreed falsely for the payment of a certain sum of money to the plaintiff then, the plaintiff would not have closed his business in the said locality. Thus, the false misrepresentation took place in the said case, and therefore, this contract becomes voidable at the option of the plaintiff.

Case Laws

Tarsem Singh v. Sukhminder Singh [2]

In this case, it was held by the court that both the parties to the agreement are under a mistake as to the matter of fact which is essential to the agreement therefore, such an agreement is void. Both the parties must be shown to suffer from the mistake of fact then, only the agreement can be treated as void. Single party mistake is outside the scope of this section. The mistake should be in respect of a matter which is essential to the agreement.

The legal issue, in this case, was that the plaintiff intended to purchase the land in terms of “bighas” and the defendant intended to sell the land in terms of “kanals” therefore, this was a dispute with respect to the area of land which was the subject-matter of the agreement for sale.

New India Assurance Co. Ltd. V. Rula and Others [3]

In this case, the court held that the contract of insurance is concluded by offer and acceptance like every other contract. Generally, the liability in case of insurance contract arises only on the payment of premium if such payment of premium is made a condition precedent to insurance policy taking effect, though such a condition which is intended for benefits of the insurer can be waived by the insurer. The court further stated that the appellant, an authorized insurer issued a policy of insurance to cover the bus without receiving the premium despite the bar created by section 64-VB of the insurance act. Therefore, the appellant became liable to indemnify third parties in respect of the liability which that policy covered as per the provisions of sections 147(5) and 149(1) of the motor vehicles act.

Bawlf Grain Co. V. Ross

A wheat producer entered into a contract when he was intoxicated and was under the influence of alcohol and he refused to perform his contractual obligation when he realized that price of the wheat increased. The court held that a contract is voidable at the option of the aggrieved party when the other party is in a state of intoxication. This was a landmark judgment.

Case Brief: Krell v. Henry

Facts of the case:

The defendant wanted to see the coronation possession of the king that would pass along the road and for that purpose; he hired a room for 2 days from the plaintiff. He also paid a certain part of the rent in advance. But due to the sickness of the king, the possession was canceled and the defendant refused to pay the full amount of the contract because of the said reason.

Legal Issues in the case:

1. Whether happening of possession was the foundation of the contract?
2. Whether the aim of the contract was frustrated or not?

Judgment:

The court held that to view the coronation possession was the main reason behind the established contract. Therefore, the happening of coronation possession was the base or foundation of the said contract. The aim of the contract was also frustrated as the coronation possession was canceled and the main objective of the contract has failed. The criteria for determining the frustration of contract is as follows-

The contract can be frustrated in 2 types of circumstances, i.e., the circumstance where the performance is physically impossible and the second circumstance, where the objective of the contract has failed. Hence, the defendant was not liable for the payment of the arrest of the rent.

Examples of Void Agreements

1. Contract related to sale and distribution of illegal substances like drugs.
2. Contact related to the hiring of wage workers below the age that is specified under the law.
3. Ayush agrees with Shubham to hit 6 sixes in 5 balls. This agreement is void because the act is impossible here in the said case as a batsman can hit only 5 sixes in 5 balls.
4. Vikas agrees to sell Sonu one thousand tons of oil. However, nothing is stated about the kind of oil which was intended to be sold to Sonu by Vikas. Therefore, such an agreement will be void because of uncertainty

Examples of Voidable Agreements

1. A contract entered or signed by misrepresenting another party.
2. A contract entered or signed by fraudulent means.
3. A contract entered in illegal capacity.
4. When there is a difference between the obligations of the parties.

Analysis: Void Agreements versus Voidable Contracts[4]

Our analysis can be based on the following grounds which will be helpful in the apprehension of void agreements and voidable contracts. These grounds are mentioned below-

1. Nature: In the case of void agreements, the contract is valid but it subsequently becomes invalid due to some reasons. Whereas, in the case of a voidable contract, the contract is valid until the party whose consent is not free does not revoke the contract.
2. Reasons: One of the main reasons for the void agreement is the subsequent illegality and impossibility of the agreed act which is to be performed by the parties who entered into the contract. Whereas, the reason for a voidable contract is that the consent of the party is not independent of the consent is obtained by fraud, misrepresentation, or undue influence.
3. Rights to Party: No rights are available to parties in case of a void agreement. In the case of a voidable contract, rights are available only to the aggrieved party.
4. Suit for damages: In void agreements, damages are not given by either party in case of non-performance. But any benefit received by either party must be restored. In voidable contracts, damages can be claimed by the aggrieved party.

Conclusion

I would like to conclude my article after a thorough analysis of all the sections and the related case laws of the void agreements and voidable contracts. It is visible that the Indian Contract Act, 1872 prohibits agreements that violate the fundamental rights mentioned in the Indian Constitution. It also prohibits contracts that are immoral and against public policy.

Last but not the least, the contract act also gives the option to the victim or sufferer party of the contract to revoke the contract or rescind it by leaving the right of option with the party as to the contract.

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References:

[1] Sagnik Sarkar, Void Agreements: Concept and Important Case Laws, Legal Bites Law & Beyond (June 12, 2021, 17:02), https://www.legalbites.in

[2] Tarsem Singh v. Sukhminder Singh, (1998) 3 Supreme Court 471, 21 and 22

[3] New India Assurance Co. Ltd. V. Rula and Others, (2000) 3 Supreme Court Cases 195: 2000 Supreme Court Cases (Cri) 601, 12

[4] Surbhi S, Difference Between Void Contract and Voidable Contract, Key Differences (June 11, 2021, 19:07), https://keydifferences.com