In simple words, a contract is an agreement between parties and it must be enforceable. In India, Contracts are governed by the Indian Contract Act, 1872. A contract is valid when it fulfills the conditions mentioned under Section 10 of the Act. This article focuses on the classification of the contract and whether the agreement involved is valid, void or voidable.
Section 2(h) of the Indian Contract Act says that a contract is “An agreement enforceable by law”. This definition tells us about two elements of a contract. They are: there must be an agreement and it must be enforceable by law. Only then the act can be considered a contract. For example, an agreement to sell land is considered to be a contract.
An agreement is defined as a promise or a set of promises which form consideration for each other. For example, X promises to deliver a Phone and Y promises to pay Rs.10000 for it. A promise is made when one party offers something and the other party accepts it. Under English law, the term “offer” is used and under Indian law, the term “proposal” is used. However, both words give the same meaning.
A contract is considered to be valid when it is consistent with the provisions mentioned in Section 10 of the Indian Contract Act.
An agreement can be considered as a contract if there exists free consent of the parties, competency of the parties to contract, a lawful consideration, lawful object, and the agreement is not void.
This definition makes us clear that a valid contract is:
- An agreement between two parties
- The parties involved are competent to contract
- Lawful consideration and lawful object are a must
- Free consent of the parties is required
- An agreement must not be one that has been expressly declared to be void
Section 2(g) of the Act defines a void contract. According to it, an agreement not enforceable by law is said to be void. Void contracts have been mentioned under Section 24 to Section 30 of the Indian Contract Act.
According to Section 24, agreements are void if consideration and objects are unlawful in part. It says that if any part of a single consideration for one or more objects, or anyone or any part of any one of the several considerations for a single object is unlawful it makes the entire agreement void. For example, if ‘A’ makes a promise to superintend on behalf of B who is a legal manufacturer of indigo and does illegal trafficking in other items. B makes a promise to pay to ‘A’ salary of Rs.10000 a year. The agreement is considered to be void as the object of A’s promise and the consideration of B’s promise being in part is unlawful.
According to Section 25, an agreement without consideration is void unless it is in writing, has been registered or is in the form of a promise to compensate for something done or is a promise to pay a debt that has been barred by limitation law. Thus, an agreement made without consideration is void except when:
- It is written and registered under the law for the time being in force and is made due to natural love and affection between the parties.
- It is a promise to compensate a person entirely or part wise, who has voluntarily done something for the promisor or something that the promisor was legally compellable to do.
- The promise is made in writing and signed by the person to be charged with or by his agent or by any person who is authorized by him.
If X promises to give Y an amount for no consideration, it is a void agreement. If A finds a belonging of B and promises to return it to him and B promises to give him an amount then it is a contract.
Section 26 says that an agreement in restraint of a marriage except in the case of a minor is void. Section 27 makes an agreement in restraint of trade void. In other words, an agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind is void to that extent. However, this Section says that an agreement in restraint of trade that is not to carry on a business whose goodwill is sold is valid.
Section 28 declares that agreement in restraint of legal proceedings is void. Every agreement that absolutely restrains enforcement of rights of any party in respect of any contract by usual legal proceedings in ordinary tribunals or limits the time within which he may enforce such rights is void to such extent. This Section provides 2 exceptions. They are:
- According to this Section, a contract, by which two or more persons are of the view that any kind of dispute which may arise between them relating to any subject shall be referred to arbitration and that only the sum awarded in such arbitration shall be recoverable relating to the dispute is not illegal.
- Any contract that is in writing by which two or more persons are of the view to refer to arbitration any question in between them which already has arisen or which affects any provision of any law with reference to arbitration is not rendered illegal under this Section.
Section 29 enlightens about situations where agreements are uncertain or can be made uncertain. In any such situation the agreement is void. For example, A agrees to sell B hundred tons of oil. There is nothing to show what kind of oil was intended by A. This agreement is void for it is uncertain. Section 30 of the Act declares that an agreement by way of the wager is void. Any Court will not entertain suits relating to anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or any event that is uncertain. The rule provides 2 exceptions. They are:
- Horse Race – According to this Section a subscription or contribution or an agreement to subscribe or contribute towards any plate, prize or sum of money of value or amount of Rs.500 or upwards to the winners of any horse races is not void.
- Crossword competitions and lottery – If skill is a substantial part of the result and prizes are awarded according to merit, the competition is not a lottery. Literary competitions that involve skill and effort is made to select the winner are not in the form of wagers.
Section 36 says that an agreement contingent upon the happening of an impossible event is void. According to Section 56 agreement to do impossible acts are void. A contract to do an act whose performance has become impossible after the contract is made becomes void.
According to Section 2 (i), an agreement enforceable by law at the option of one or more parties but not at the option of the other or others is a voidable contract. It means the contract can be avoided by one party.
In the case of Chhanga Lal V M.C. Delhi, it was held that once an innocent party exercises his option and rescinds the contract becomes void.
According to Section 19 of the Act, when a party has consented to a contract due to force, coercion, fraud or misrepresentation the agreement is voidable at the option of the party whose consent obtained in such manner. If a party to a contract whose consent was obtained by fraud or misrepresentation is interested in the performance of the contract, he may insist that the contract shall be performed.
Article 19 A says that when a Contract is consented by undue influence, the agreement is voidable at the option of the party unduly influenced. A contract can be called to be ‘induced by undue influence’ where the relation subsisting between the contracting parties are such that either of the parties is in a position to dominate the will of the other.
According to Section 53 in cases where a contract contains reciprocal promises and one party involved in the contract prevents the other from performing his part of the promise, the contract becomes voidable at the option of the party who has been prevented. For example, X and Y contract that Y shall execute certain work for X for a certain sum of money. Y is willing to do the work but X prevents him from doing it. The contract is voidable on the part of Y.
According to Section 55, when a contract is time-based or time is the essence of the contract, failure by one party in performing it on time is voidable at the option of the other party. A person who has himself delayed the contract cannot avoid the contract on account of his own delay.
Section 64 deals with the consequences of the rescission of a voidable contract. According to it when a person at whose option is voidable rescinds it, the other party need not perform any promise. The party rescinding a voidable contract, if he has received any benefit from the other party shall restore such benefit to the person from whom it was received.
The rescission of a voidable contract is communicated in the way revocation of a proposal is communicated.
The agreements which are forbidden by law are called illegal agreements. Such agreements mostly affect public policies or are criminal in nature. However, it is different from that of a void agreement.
Difference between Illegal Agreement and Void Agreement:
An Illegal Agreement is forbidden by law but a void agreement is not forbidden. A void agreement if made cannot be enforced by the Court but is not forbidden. No punishment is provided for void contract and the collateral transactions are not affected but an illegal contract is punishable and its collateral transactions are void.
In the case of Gherulal Parakh V Mahadeodas Maiya and others, it was held that void agreements cannot be equated with illegal agreements and the law may actually forbid an agreement to be made or it may refuse to enforce an agreement.
Difference between Void and Voidable Contracts:
- A void contract is a nullity from its inception and no rights accrue to any party thereto or his transferee, etc. A voidable contract can be avoided by one party.
- A void contract becomes invalid at the time of its creation but a voidable contract becomes invalid only if it is canceled by one of the parties.
- A void contract cannot be enforceable by law but a voidable contract can be enforced if it is not avoided by either of the parties.
- In case of a void contract, the performance of the contract is not possible whereas in case of a voidable contract performance is possible if it is not avoided by either of the parties.
A contract, in order to be enforced and be valid, must fulfill the conditions provided under Section 10 of the Act. If the conditions are not fulfilled it either becomes a void or a voidable contract.