Law of contract: Void and voidable contracts

Reading time: 8-10 minutes.

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. In India, these conditions are met under the Indian Contract Act, 1872. Similarly, the Law of Contract, in Common law, also specifies the grounds under which a certain agreement may not be enforceable or valid either absolutely or under the discretion of one of the parties to the contract. When it’s absolutely invalid, then the contract is said to be void, but when one of the parties to a contract merely has the option to void the contract, then it is said to be voidable.

These provisions under Contract Law usually aim at ensuring fairness in the process. It protects the parties from being at an unjust disadvantage or from making a contract, which is contrary to the law of the land. This basically means that anyone who is taken for granted as a result of the contract may be protected from loss if the contract turns out to be void or voidable at the option of said party.

Therefore, any contract which is made involuntarily or by unlawful means may not be enforceable in the court of law. This provision is particularly useful for unsuspecting people such as children and those with an unsound mind who are prone to fraudulent schemes. In the context of India, the law on this matter has been codified and harbors a good deal of authority. In cases of civil law such as this one, judicial precedents are also extremely helpful in clarifying any ambiguities in the law. Overall, void contracts and voidable contracts not only differentiate the terms, but they lay down the basis for an invalid contract, which is extremely significant.

What are Void and voidable contracts?

  • Void contracts:

This particular category is defined under Section 2(g) of the Indian Contract Act, 1872, which states that contracts or agreements that are not enforceable by law are known as void contracts. Simply put, a contract that cannot be enforced by either of the parties to the contract is one which has been rendered void. It is as if any agreement between the parties never existed, and thus no obligations by either of the parties have to be fulfilled. 

The grounds for a contract to be rendered void include the use of unlawful means, incompetency to enter into a contract, supervening impossibility, and so on. For instance, if A enters into a contract with B to smuggle contraband items into a city, then such agreement will not be enforceable under the law. This is because the subject matter of the contract was illegal and opposed to public policy.

  • Voidable contracts:

Section 2(i) of the Indian Contract Act, 1872 defines voidable agreements as those which are valid as long as one of the parties or both the parties can decide to void their agreement. Mostly, cases involving a voidable contract relate to a situation where there was a lack of free consent from one of the parties. Therefore, 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.

The basis for deciding whether a contract is voidable at the option of either of the parties depends on factors such as coercion, misrepresentation, undue influence, and so on. Since it’s at the option of one of the parties, the aggrieved party gets to decide whether or not to make the contract void.

For example, A holds B at gunpoint and asks her to sell him her house at an extremely low price, and B does so accordingly, fearing for her life. In this situation, B was coerced into an agreement by A, and thus her consent was not freely obtained. Therefore, she can choose to void the contract on this basis.

Relevant legal provisions: –

Law of Contract in India is governed under the Indian Contract Act, 1872, which is based on the principles of English Common law. There are several provisions under this Act dealing with Void and voidable contracts.

Void contracts:

  • Mistake of Fact (Section 20) –

This provision states that if the parties to a contract are under a mistake as to a matter of fact essential to the agreement. Therefore, any agreement with a bilateral mistake is void. 

  • Mistake of Law (Sections 23 & 24) –

If either the consideration or the object of a contract is illegal, then the agreement is void as it defeats the provisions of the law. This applies to contracts which the court may deem as immoral or opposed to public policy, such as fraudulent agreements, which may cause financial loss to a person.

However, if the legal part of the contract is severable from the illegal part, then the former can be enforced in the court of law.

  • Agreements without Consideration (Section 25) –

This section provides that a contract 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.

  • Agreements in restraint of marriage (Section 26) –

Any agreement which is made in restraint of marriage, either partially or absolutely, of a person is void as it the policy of the law to protect a person’s freedom to choose their marital partner. 

  • Agreements in restraint of trade (Section 27)-

Agreements made in restraint of trade are also rendered void as the law protects a person’s right to carry on their choice of trade or profession, given that it is not illegal in nature.

The exception to this section is laid out in the proviso to Section 27 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. 

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

These sections provide that an agreement, the terms of which are uncertain, based on uncertain events or based on impossible occurrences, are void except in certain cases such as that of horse racing. Basically, wagering agreements such as betting or gambling are not enforceable in the court of law. However, the formation of a contingent contract is perfectly valid.

Voidable contracts:

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

These sections provide that any contract wherein consent is not freely obtained from a party is voidable at the option of that party. In such circumstances, consent may be 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)-

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, then 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)-

There are certain contracts in which time is of the essence, and thus they need to be performed during that period itself. However, when there is a failure to perform the contract on time, then the contract becomes voidable at the option of the aggrieved party.

  • Consequences of rescission (Section 64)-

When a person, at whose option the contract is voidable, rescinds it then the other party need not perform any obligations relating to the contract. At the same time, the person who has voided the contract must restore any benefits he/she may have received.

Similarities and differences: –

Similarities:

  • Both the provisions under the Indian Contract Act, 1872 relate to the non-performance of an agreement between the parties who may or may not wish for the same.
  • If a party in a voidable contract decides to rescind the same, then it has the same effect as that of a void agreement wherein it is assumed as if the agreement never existed.
  • Both the provisions deal with the formation of a contract through immoral and illegal practices that go against the public policy.
  • The primary object of adding these provisions was to ensure that people are not taken advantage of as a result of an agreement made by them unsuspectingly.

Differences:

  • A void contract is invalid from the moment it is agreed upon by the parties, whereas a voidable contract is still enforceable unless one of the parties decides to invalidate the same.
  • An agreement that is voidable is under the discretion of either of the parties to be invalidated, but an agreement that already offers no choice to any of the parties with regards to the enforceability of the agreement is a void one.
  • A void contract is not binding on any of the parties. However, a voidable contract is binding on at least one of the parties.

Case studies: –

  • Void Agreements-Collins v Godefroy: In this case, the defendant, Godefroy, had received a subpoena to provide evidence in the court of law. Instead of going to court himself, Godefroy promised to pay Collins a certain amount if he attended court on behalf of Godefroy. However, later Godefroy refused to pay the sum, and thus Collins brought an action against him. The court held that Collins’s action was not maintainable as the performance of an existing legal duty is not proper consideration. Thus, their agreement was void on the grounds that there was no consideration from the plaintiff’s side.
  • Voidable agreements- Bawlf Grain Co. v. Ross: An intoxicated wheat producer under the influence of alcohol entered into a contract but did not perform his obligations once he saw the price of wheat increase. It was a landmark judgement which held that any contract wherein a party is inebriated is voidable at the option of the aggrieved party.

Critical analysis: –

The provisions or sections relating to void as well as voidable contracts under the Indian Contract Act are not only simplistic but possess immense clarity as well. The fact that this law is applicable to this day, without the need of any amendments stands as a testimonial to its element. Furthermore, it takes a protective approach with contract law in the sense that it guards people from fulfilling unreasonable, illegal, and immoral obligations of an agreement, which may cause them severe loss. It is extremely easy for some people to influence others who may be at a weak bargaining point and thus get exploited. Provisions such as these prevent such agreements from having any legal or official authority.

The sections relating to void and voidable contracts complement other laws as well, such as the Sales of Goods Act, 1930, or any other statute relating to transactions between parties. They are an integral part of understanding the formation of a contract, as it is equally important to highlight the don’ts of the process. Lastly, the law on the subject of void as well as voidable contract strikes a balance between flexibility and rigidity of its application as it could adapt to the facts of the case while maintaining its terms and conditions.

Conclusion: –

To sum up, the provisions surrounding void and voidable contracts in the law of contract can render an agreement unenforceable by law, thus making it invalid. An agreement may be void when it cannot be enforced by either party due to it being unsatisfactory of the standards of a valid contract. On the other hand, voidable contracts are valid contracts but may be invalidated at the option of the suffering party. These provisions highlight the factors which may cause an agreement between people to cease from existence. Therefore, these provisions are instrumental to the law of contract all over the world.

Author: Amitabh Abhijit from National Law Institute University, Bhopal.

Editor: Avani Laad from Symbiosis Law School, Pune.

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