Void Agreements (Section 2(g))
Meaning of Void Agreement
In the realm of contract law, not all agreements are legally binding. Some agreements are deemed void by law, meaning they are unenforceable from the outset or become so later.
Definition under Section 2(g)
Section 2(g) of the Indian Contract Act, 1872 defines a "void agreement":
"An agreement not enforceable by law is said to be void."
This definition highlights the key characteristic of a void agreement: lack of enforceability by law. This unenforceability can exist from the very moment the agreement is made, or it can arise subsequent to the agreement's formation.
An agreement not enforceable by law
An agreement may be not enforceable by law for several reasons. These reasons often relate to the absence of essential elements of a valid contract (Section 10) or because the law expressly declares them to be void. Here are the key aspects:
- Void ab initio (Void from the beginning): An agreement may be void from the very moment it is entered into because it lacks one or more of the essential elements of a valid contract as specified in Section 10, or because it falls under one of the categories of agreements expressly declared void by the Act. Examples include agreements with a minor (as held in Mohori Bibee's case, although not explicitly in Section 10/11), agreements based on bilateral mistake of essential fact (Section 20), or agreements with unlawful consideration or object (Section 23).
- Void due to subsequent impossibility or illegality: An agreement may be valid when it is made, but may become void later due to circumstances that make its performance impossible or illegal (Section 56, discussed below).
- No Legal Effect: A void agreement does not create any legal rights or obligations between the parties. It is a nullity in the eyes of the law.
- Cannot be Enforced: Neither party can compel the other to perform any promise made under a void agreement.
- No Question of Voidability: A void agreement is distinct from a voidable contract. A voidable contract is valid until set aside by the aggrieved party; a void agreement is unenforceable from the start or becomes so later, and the question of setting it aside does not arise in the same way.
- Restitution: If a party has received any advantage under an agreement that is *discovered* to be void (not void ab initio in all cases), they may be bound to restore it or make compensation under Section 65. However, the applicability of Section 65 to agreements void ab initio, like those with minors, is debated and depends on specific circumstances and other legal provisions (like Section 33 of the Specific Relief Act).
The Indian Contract Act specifically identifies certain types of agreements that are expressly declared void. These are detailed in various sections of the Act and serve as key examples of void agreements.
Example 1. Mr. Pawan, a 16-year-old, agrees to sell his laptop to Mr. Qureshi for Rs. 20,000/-. Mr. Qureshi pays the full amount, but Mr. Pawan refuses to deliver the laptop. Can Mr. Qureshi sue Mr. Pawan for breach of contract?
Answer:
No, Mr. Qureshi cannot sue Mr. Pawan for breach of contract. Mr. Pawan is a minor, and an agreement with a minor is void ab initio (Mohori Bibee v. Dharmodas Ghose). Since the agreement is void, it is not enforceable by law (Section 2(g)). Mr. Qureshi has no legal right to compel Mr. Pawan to deliver the laptop under this void agreement. While recovery of money paid might be possible in very specific circumstances (e.g., if the money is still with the minor and identifiable, and the minor is seeking court relief), generally, a void agreement provides no basis for legal enforcement.
Examples of Void Agreements
The Indian Contract Act, 1872, specifically declares several types of agreements as void. These are instances where, even if other elements like offer, acceptance, and consideration might exist, the agreement is deemed unenforceable by law due to its nature or lack of certain formal/substantive requirements.
Agreements without consideration (Section 25)
Section 25 states, "An agreement made without consideration is void, unless..." This reinforces the principle that consideration is essential for a valid contract. If an agreement lacks consideration, it is generally void. However, Section 25 itself lists several exceptions where agreements made without consideration are valid and enforceable (e.g., agreement based on natural love and affection, promise to compensate for past voluntary service, promise to pay a time-barred debt, gift actually made, agency contract).
Example: A promises to give B Rs. 1,000/- without any return. This agreement is void for lack of consideration, unless it falls under one of the exceptions in Section 25.
Agreements in restraint of marriage (Section 26)
Section 26 declares every agreement in restraint of the marriage of any person, other than a minor, to be void. As discussed previously, this is based on public policy protecting the freedom to marry.
Example: An agreement to pay someone money if they do not marry for 5 years is void.
Agreements in restraint of trade (Section 27)
Section 27 declares every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, to that extent, to be void. This is also based on public policy promoting free trade, subject to specific exceptions (e.g., sale of goodwill, partnership agreements).
Example: An agreement between two shopkeepers in the same market not to compete with each other is generally void.
Agreements in restraint of legal proceedings (Section 28)
Section 28 declares void agreements that absolutely restrict a party from enforcing their rights through usual legal proceedings or limit the time within which they may sue to a period shorter than that prescribed by the Limitation Act. This protects the right to access justice, with an exception for arbitration agreements.
Example: A clause stating that no suit can be filed after 6 months when the limitation period is 3 years is void.
Agreements void for uncertainty (Section 29)
Section 29 states, "Agreements, the meaning of which is not certain, or capable of being made certain, are void." The terms of an agreement must be sufficiently definite so that the parties know what they are agreeing to and a court can determine what needs to be enforced. If the terms are vague, ambiguous, or incomplete on essential matters, the agreement is void for uncertainty.
Example: A agrees to sell "100 tonnes of oil" to B. The agreement is void for uncertainty because the type of oil is not specified. If it said "100 tonnes of coconut oil", it would be certain.
The terms must be capable of being made certain, perhaps by reference to past dealings, trade usage, or a mechanism agreed upon by the parties (like valuation by a third party).
Wagering Agreements (Section 30)
Section 30 states, "Agreements by way of wager are void; and no suit shall be brought for recovering anything alleged to be won on any wager, or entrusted to any person to abide the result of any game or other uncertain event on which any wager is made." A wager (or wagering agreement) is an agreement between two parties that contingent upon the happening or non-happening of an uncertain future event, one party will pay a sum of money to the other, and that second party will pay a sum of money to the first party upon the opposite outcome. Both parties must stand to win or lose based solely on the event. The parties must have no other interest in the subject matter of the agreement other than the stake they will win or lose.
Example: A and B agree that if it rains tomorrow, A will pay B Rs. 500/-, and if it does not rain, B will pay A Rs. 500/-. This is a wagering agreement and is void.
Exceptions to wagering agreements include insurance contracts (where there is an insurable interest), share market transactions (where there is a genuine intention to buy/sell shares), prize competitions involving skill (not pure chance), and horse racing prizes above a certain value in some states.
In Maharashtra and Gujarat, wagering agreements are not only void but also illegal.
Agreements contingent on impossible events (Section 36)
Section 36 states, "Contingent agreements to do or not to do anything, if an impossible event happens, are void, whether the impossibility of the event is known to the parties or not." A contingent contract is one where the performance is dependent on the happening or non-happening of a collateral uncertain event (Section 31). If the uncertain event upon which a contingent agreement is based is impossible, the agreement is void.
Example: A agrees to pay B Rs. 1,000/- if B marries A's daughter C within a week. C was dead at the time of the agreement. The event (marrying a dead person) is impossible. The agreement is void.
Agreements to do impossible acts (Section 56)
Section 56 deals with agreements to do acts that are impossible. The first paragraph states, "An agreement to do an act impossible in itself is void." This refers to initial impossibility existing at the time the agreement is made.
Example: A agrees to discover treasure by magic for B in exchange for payment. This is an agreement to do an act impossible in itself and is void.
Section 56 also deals with subsequent impossibility (Doctrine of Frustration), where a contract that was possible to perform when made becomes impossible or unlawful due to events beyond the parties' control. In such cases, the contract becomes void when the act becomes impossible or unlawful.
Agreements based on bilateral mistake of fact (Section 20)
As discussed previously, agreements based on a mutual mistake of fact essential to the agreement are void under Section 20 due to absence of consensus ad idem.
Agreements with unlawful object or consideration (Section 23)
Agreements where the object or consideration is forbidden by law, defeats law, is fraudulent, involves injury, is immoral or opposed to public policy are void under Section 23, as discussed previously.
Example 1. Mr. Rahul agrees to sell his vintage coin collection to Mr. Sameer for a price to be agreed upon later. Is this agreement valid?
Answer:
No, this agreement is void. The price is an essential term of a contract for sale. The agreement states that the price is "to be agreed upon later". This makes the agreement uncertain as to a fundamental term. Unless there is a mechanism agreed upon to determine the price (like valuation by a specific person), or the price can be made certain from the circumstances (like a standard market price), the agreement is void for uncertainty under Section 29.
Example 2. Two friends, Mr. Tarun and Mr. Umesh, agree that whoever predicts the score of the upcoming cricket match between India and Australia more accurately will win Rs. 1,000/- from the other. They both put in Rs. 1,000/- each with a third friend, Mr. Varun, to be given to the winner. Is this agreement valid?
Answer:
No, this agreement is a wagering agreement and is void under Section 30. It is an agreement between two parties promising to pay money to each other based on the outcome of an uncertain future event (the score of the cricket match), where each party has no interest other than winning or losing the stake. The agreement with Mr. Varun to hold the money is collateral to the wagering agreement and also unenforceable ("no suit shall be brought... entrusted to any person to abide the result of any game").
Voidable Contracts (Section 2(i))
Meaning of Voidable Contract
Not all agreements that fail to meet the full criteria of a valid contract are void ab initio. Some are classified as voidable contracts, which are initially valid but can be set aside by one of the parties.
Definition under Section 2(i)
Section 2(i) of the Indian Contract Act, 1872 defines a "voidable contract":
"An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract."
This definition highlights the key characteristic of a voidable contract: its enforceability depends on the choice of one or some of the parties involved, specifically the party whose consent was affected by certain factors.
Enforceable at the option of one or more parties
A voidable contract is not void from the beginning. It is a valid agreement when made and remains binding on both parties until it is challenged by the party who has the option to avoid it. The contract is enforceable by law *at the option of* the party whose consent was not free. This party can choose to be bound by the contract or to terminate it.
Example: A contract entered into under coercion is voidable at the option of the coerced party. The other party (who exercised coercion) is bound by the contract unless the coerced party chooses to set it aside.
Voidable at the discretion of the aggrieved party
The power to affirm or avoid the contract lies solely with the party whose consent was not freely given. This is often referred to as the 'aggrieved party' or the 'party whose consent was so caused'. The other party (the one who caused the consent through coercion, undue influence, etc.) does not have this option; they are bound by the contract unless and until the aggrieved party rescinds it.
Example: Mr. Pawan induces Mr. Qasim to buy his property by fraudulent misrepresentation. The contract is voidable at Mr. Qasim's option. Mr. Qasim can decide to keep the property and be bound by the contract, or he can decide to return the property and get his money back, thereby avoiding the contract. Mr. Pawan cannot later claim the contract is voidable just because he committed fraud.
The discretion must be exercised within a reasonable time and before the aggrieved party does anything that amounts to affirming the contract.
Example 1. Ms. Ritu is pressured by her employer, Mr. Suresh (who is in a dominant position), to sign a contract on unfavorable terms. She signs the contract. Later, she realises she was unduly influenced but decides to continue with the contract anyway as she needs the job. Can Mr. Suresh later argue that the contract is voidable because it was caused by his undue influence?
Answer:
No, Mr. Suresh cannot argue that the contract is voidable. The contract was voidable at the option of Ms. Ritu, the party whose consent was caused by undue influence (Section 19A read with Section 2(i)). Mr. Suresh, the party who caused the undue influence, does not have the option to avoid the contract. Furthermore, by deciding to continue with the contract despite realizing the undue influence, Ms. Ritu has likely affirmed the contract, further solidifying its binding nature. The contract is binding on Mr. Suresh unless and until Ms. Ritu had chosen to set it aside.
Contracts affected by Coercion, Undue Influence, Fraud, Misrepresentation, and Mistake
The circumstances under which an agreement becomes a voidable contract are primarily those where the consent of one party is not free due to certain vitiating factors.
Factors Leading to Voidable Contracts:
As stated in Section 14, consent is not free if caused by coercion, undue influence, fraud, misrepresentation, or mistake (subject to Sections 20, 21, and 22).
- Coercion (Section 15): An agreement where consent is obtained by committing or threatening to commit an act forbidden by IPC or unlawfully detaining property. Such agreement is voidable at the option of the coerced party (Section 19).
- Undue Influence (Section 16): An agreement where consent is obtained by a party in a dominant position using that position to gain unfair advantage. Such agreement is voidable at the option of the influenced party (Section 19A).
- Fraud (Section 17): An agreement where consent is obtained by intentional false representation or concealment of facts to deceive and induce. Such agreement is voidable at the option of the defrauded party (Section 19).
- Misrepresentation (Section 18): An agreement where consent is obtained by an innocent false statement or breach of duty without intent to deceive, misleading the other party. Such agreement is voidable at the option of the misled party (Section 19), subject to the condition that the truth couldn't be discovered with ordinary diligence.
In all these four cases, the law provides the aggrieved party with the option to either uphold or set aside the contract. This makes the contract voidable.
Mistake: Mistake is different. As per Section 14(5), it's subject to Sections 20, 21, and 22.
- A bilateral mistake of fact essential to the agreement (Section 20) makes the agreement void, not voidable.
- A unilateral mistake of fact (Section 22) generally does not make the contract voidable; it remains valid.
- A mistake of Indian law (Section 21) does not make the contract voidable; it remains valid.
- A mistake of foreign law (Section 21) is treated as a mistake of fact. If bilateral and essential, it makes the agreement void.
Therefore, mistake, while affecting consent, does not result in a voidable contract under Sections 20, 21, or 22. Its effect is either to make the agreement void or leave it valid. The only exception where mistake might lead to a voidable contract could be if a party's unilateral mistake was caused by the *misrepresentation* of the other party (Section 18(3) read with Section 19), in which case it's voidable due to misrepresentation, not mistake per se as defined in Sections 20-22.
Example 1. Mr. Vinay buys a painting from Mr. Yogesh because Mr. Yogesh innocently told him it was painted in 1950, whereas it was actually painted in 1960. Mr. Vinay was induced by this statement. Is the contract void or voidable?
Answer:
The contract is voidable at the option of Mr. Vinay. Mr. Yogesh made an innocent false statement (misrepresentation under Section 18(1)) which caused Mr. Vinay's consent. According to Section 19, a contract caused by misrepresentation is voidable at the option of the party whose consent was so caused. Mr. Vinay can choose to avoid the contract.
Example 2. Mr. Zubin agrees to buy a specific antique chair from Ms. Anjali, both believing it to be made of solid teak wood. After the agreement, they discover it is made of a different, less valuable wood. Is the contract void or voidable?
Answer:
The contract is void. Both parties were under a mistake as to a matter of fact (the type of wood) essential to the agreement (the substance/quality of the subject matter). This is a bilateral mistake of fact essential to the agreement. According to Section 20, such an agreement is void, not voidable. There was no consensus ad idem on the essential nature of the item being sold.
Consequences of Voidable Contract
The defining characteristic of a voidable contract is the option it provides to the aggrieved party. The main consequence is the right to rescission.
Rescission
Rescission means cancelling or setting aside the contract. The party who has the option to treat the contract as voidable can exercise this right by communicating their intention to rescind the contract to the other party. Once the contract is rescinded, it is treated as if it never existed.
Consequences of Rescission (Section 64):
"When a person at whose option a contract is voidable rescinds it, the other party thereto need not perform any promise therein contained in which he is the promisor. The party rescinding a voidable contract shall, if he has received any benefit thereunder from another party to such contract, restore such benefit, so far as may be, to the person from whom it was received."
Key effects of rescission:
- Termination of Obligations: Both parties are released from their future obligations under the contract.
- Restoration of Benefits: The party who rescinds the contract must return any benefit they have received from the other party under the contract. This aims to restore the parties to their pre-contractual position (status quo ante).
- Damages (in case of Fraud): As noted earlier, while rescission is the primary remedy for all voidable contracts, in the case of fraud, the aggrieved party can also claim damages in addition to or instead of rescission (Section 19). For undue influence, Section 19A gives the Court discretion to set aside the contract absolutely or subject to terms regarding benefit restoration.
- Loss of Right to Rescind: The right to rescind a voidable contract is lost in certain situations:
- If the aggrieved party affirms the contract (expressly or by conduct) after becoming aware of the factor that makes it voidable.
- If third parties have acquired rights in the subject matter of the contract in good faith and for value before the rescission (e.g., if property transferred under a fraudulent contract is sold to an innocent buyer).
- If it is no longer possible to restore the parties to their original position.
- If the aggrieved party fails to exercise the option to rescind within a reasonable time.
The concept of voidable contracts provides flexibility, allowing the victim of a vitiated consent to choose the most beneficial course of action – either escaping the contract or enforcing it, depending on the circumstances.
Example 1. Mr. Balram buys a car from Mr. Chander for Rs. 5 Lakhs, induced by Mr. Chander's fraudulent claim about the car's model year. Mr. Balram discovers the fraud after a month and decides to rescind the contract. What must happen with the car and the money?
Answer:
Since Mr. Balram is rescinding the voidable contract, he must restore the benefit he received under the contract to Mr. Chander. This means Mr. Balram must return the car to Mr. Chander. Correspondingly, Mr. Chander must restore the benefit he received from Mr. Balram, meaning he must refund the purchase price of Rs. 5 Lakhs to Mr. Balram. This mutual restoration is required under Section 64 to bring the parties back to their original position before the contract.