Difference Between Void Agreement And Voidable Contract

Introduction

A contract is an agreement enforceable by law. In other words, a contract is an agreement reached by two competent parties through an offer and its acceptance to do or not to do something, supported by valid consideration and object. An agreement that fails to satisfy the essentials of a valid contract or is expressly declared ‘void’ under various sections of the Act does not constitute a valid contract. It is ‘voidable’ when one party holds the authority to make it ‘void’ due to various reasons, which are discussed subsequently.

The terms void and voidable are frequently misunderstood and used interchangeably. While there are some parallels between void and voidable contracts, there are significant distinctions that must be understood. The most underlined difference between void agreement and voidable contract is that void contracts are those which are unenforceable by law, whereas voidable contracts are those that are enforceable at the option of a party to the contract. This article aims to highlight other significant differences and define the kinds of contracts which are void, and those which are voidable.

Void Agreement And Void Contract

A void ‘agreement’  refers to an agreement that is void-ab-initio, or void from the very beginning. It is inherently, unlawful and unenforceable and its breach does not entitle the aggrieved party to any legal remedy. Contrary to it, a void ‘contract’ is one that was valid in the beginning, but ceases to be enforceable subsequently. For instance, a contract to sell a one-of-a-kind painting worth a million dollars would become void, if after the contract is made, it is destroyed by fire.

Section 2(g) of the Indian Contract Act defines void agreement as: “An agreement not enforceable by law is said to be void.

Some kinds of agreements are specifically listed as void by the Indian Contract Act, 1872. Even if they satisfy the essentials of a valid contract, they cannot be enforced. As a whole, in the following cases the ‘agreement’ is treated as void: –

1. Agreement by a Minor, a person of unsound mind, or by a person disqualified from contracting by law (Section 11): An agreement by a person not competent to contract is void as it does not cater to the essentials of a valid contract.

2. An agreement with a bilateral mistake (Section 20): When there is a misunderstanding or mistake between the parties as to the essential matter of fact of the agreement, it is considered void.

3. Agreement of which the consideration or the object is not lawful (Sections 23 and 24): Such agreements, the object or consideration of which are forbidden by law, fraudulent, injurious to person or property, immoral, or opposed to public policy are unlawful and thus, void.

4. Agreement without consideration (Section 25): An agreement without consideration is void. However, in some exceptions mentioned in the sub-section of Section 25, such agreement is valid, i.e.,

  • firstly, if it is a promise made out of love and affection,
  • secondly, if it is compensation for past voluntary acts, and
  • thirdly, if it is a promise to pay a time-barred debt

5. Agreement in restraint of marriage (Section 26): Every agreement in restraint of marriage of an adult is void as it prima facie interferes with a person’s freedom to marry and the right to marry a person of one’s choice.

6. Agreement in restraint of Trade (Section 27): As per section 27, “every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.” This section aims to protect the liberty of a person to trade and prevent monopolistic propensities. Such restriction on trade may be total, i.e., it may restrict the liberty of a person to carry out business in the whole country for his lifetime, or partial, in that, it may disallow a person to trade in a particular locality.

This can be understood through the illustration- ‘A and B ran the same type of business in the same Calcutta neighborhood. B agreed to pay A a certain sum if A closed his business in that area. After closing his business, A filed a lawsuit against B to recover the promised amount. It was declared null and invalid because it impeded trade’.[1] The proviso to Section 27 lists various exceptions to the rule, applied namely, in the sale of goodwill, solus agreement, or in trade combinations.

7. Agreement in restraint of legal proceedings (Section 28): An agreement restraining a party’s right to legal remedy or placing restrictions on the time within which a right can be enforced in a court of law is void. The only exceptions are that the parties are allowed is to refer existing or future disputes to arbitration through an arbitration clause.

In simpler words, any agreement is null and void if:

  • By agreement, they make it impossible for a party to go to a competent court or tribunal if their rights have been violated.
  • Limit the amount of time an aggrieved party has to file a complaint with such a court or tribunal.
  • By agreement, make a party immune to liability.

8. An agreement that is ambiguous and uncertain (Section 29): An agreement of which the intention and meaning are unclear and uncertain, and cannot be determined reasonably is void. For example, there was an agreement in Guthing v. Lynn[2] to pay $5 more than the horse’s price if it proved lucky. The contract was deemed unclear by the court since there was no mechanism in place to establish how the horse would bring luck to the party.[3]

9. Agreement by way of the wager (Section 30): Though there is no precise definition of wager, Wagering Agreements are agreements between parties in which money is payable by the first party to the second party on the occurrence of a future uncertain event, and the second party to the first party if the event does not occur. It is similar to a ‘bet’. Under the Indian Contract Act, the following essentials have been identified to constitute a wager:

  • Parties must have opposite views about an uncertain event,
  • There must be chances of gain or loss, based on the event,
  • The parties must have no other vested interest save the amount of bet.

In Diggle v. Hige[4], each of the two participants in a walking contest put down € 200 with a shareholder, with the condition that the loser forfeits € 200. It was concluded that the arrangement was a wagering one.

10. Agreement to do an impossible act (Section 56): an agreement to do an impossible act is void. Further, an act becoming impossible/frustrated, or declared unlawful later on also causes the agreement to become void. To take an illustration, “A contracts to take in cargo for B at a foreign port. A’s Government afterward declares war against the country in which the port is situated. The contract becomes void”[5].

Normally, a void agreement or contract does not give rise to compensation. However, in the case of a person agreeing with another to do an impossible act knowing it to be impossible, the promisee (not aware of its impossibility) can claim damages for non-performance.

Voidable Contract

A voidable contract is one that was and continues to be a valid contract till the aggrieved party repudiates their consent, and thereby, causes it to be no longer enforceable.

According to Section 2(i) of the Indian Contract Act 1872, “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.

The contract can be avoided or declared voidable under the following cases:-

1. Absence of free consent (Section 19 and 19-A): A party to the contract, whose consent was not free or taken under Coercion, undue influence, misrepresentation, or fraud, has the option to avoid or take ack their consent.

2. Prevention of Performance by the other party (Section 53): When a party is obstructed by the other party from fulfilling their reciprocal promise (or a contingent event on which it hinges), which forms the consideration for the contract), the party in question gets a right to be compensated for any loss caused and to avoid the contract. To take an example, A lets his house to B for one year for an agreed amount but does not hand over the keys of the house during the lease period. In this case, B is entitled to avoid the contract.

3. Failure to perform the contract within the stipulated time (Section 55): When a party intends time to the essence of the contract and the promise is not completed within the stipulated time, the promisee is entitled to avoid the contract.

Comparative Differences Between Void Agreement, Void Contract And Voidable Contract

Basis of Comparison VOID AGREEMENT VOID CONTRACT VOIDABLE CONTRACT
Definition and Section Section 2(g) of the Indian Contract Act, 1872 defines void agreement as: “An agreement not enforceable by law is said to be void.

 

Section 2(g) of the Indian Contract Act, 1872 defines a void contract as: “An agreement not enforceable by law is said to be void.

 

According to Section 2(i) of the Indian Contract Act 1872, “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.

 

Nature A void agreement is void-ab-initio, i.e., void from the very beginning. The contract is legitimate at first, but it becomes invalid later for various reasons. The contract will remain in effect until the party whose consent is not free revokes it.
Claim for Damages In the case of void ‘agreement’, there is no remedy available in law. It is allowed only to the extent to restore any benefit received by the party, on the grounds of equity. The injured person has the right to take legal action to recover damages.
Right of Third Party A third party does not obtain any rights under a void agreement. A third party does not obtain any rights under a void contract. A third party that buys goods in good faith and for consideration before the contract is rejected gets rights under a voidable contract.
 Validity A void agreement can never become a valid contract by consent of the parties, or upon the lapse of a reasonable time. A void contract can never become a valid contract by consent of the parties, or upon the lapse of a reasonable time. A voidable contract becomes a valid contract upon the lapse of a reasonable time, or upon affirmation, ratification, waiver of the right, or acquiescence of the consent of the party whose consent was not free.

Conclusion

To conclude, a void agreement and voidable contract have distinct connotations and legal consequences. A void agreement is a dead agreement as it lacks any legal backing, whereas a voidable contract may be legally enforceable. Some kinds of agreements are declared void by law due to them being unlawful and opposed to public policy, and also to protect the life and liberty of individual persons. Not only that, but it also aims to protect persons who are vulnerable to be exploited, such as ‘minors’ and ‘lunatics’. Likewise, some ‘agreements’ are designated as ‘voidable’, to allow a party autonomy to repudiate their consent if it were caused by fraud, misrepresentation, coercion, and undue influence. For example, if a person in a position to dominate another person causes that person to execute a contract, the same can be repudiated by the dominated party. If there were no such provision, it would lead to gross injustice and unfairness. Hence, any contract formed inadvertently, involuntarily, or by illegal means is unenforceable in a court of law.

References

  • Law of contract: Void and voidable contracts, available at: http://www.legalservicesindia.com/article/315/Void-&-Voidable-Agreements.html (last visited on September 22, 2021).
  • Void & Voidable Agreements, available at: https://lexlife.in/2020/05/31/law-of-contract-void-and-voidable-contracts/ (last visited on September 22, 2021).

[1] Madhub Chander v. Rajcoomar Dass (1874) 14 B.L.R. 76

[2] (1831) 2 B & Ad 232

[3] Ambiguous and Uncertain Agreements, available at: https://advocatespedia.com/Ambigious_and_Uncertain_Agreements  (last visited on September 21, 2021).

[4] (1877) 2 Ex. D. 422

[5] Illustration (d) to s. 56

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Tazeen Ahmed

Tazeen Ahmed is a first-year law student at Jamia Millia Islamia, New Delhi, inquisitive about Constitutional Law, Family Law, Corporate Law, Human Rights Law, and Criminal Law. She is a proficient writer, skilled in conducting legal research and organizing her articulations on social-legal and political issues. She holds a sound academic record, having scored 93.80 % in AISSE and 95% in both Political Science and English Language in AISSCE. She has held prestigious positions in the Student Council and been adjudged the ‘Student of the Year 2016, Gurgaon’ by UnivQuest. She has formerly served as a legal intern at ubadvocate, where her performance was marked “outstanding” by the team and is an Editor at The Wall of Justice blog. She is also an avid reader, a poet, and a political enthusiast. Above all, she is a dedicated and dynamic soul, ever-prepared to undertake challenging roles in the legal battlefield, and treats constructive criticisms as stepping stones towards progress.