1. CA Siddharth Ranjan
VOID & VOIDABLE CONTRACTS-
A BRIEF DISCUSSION
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“I like not fair terms and a villain's mind.”
-William Shakespeare (in The merchant of Venice)
2. WHAT IS A CONTRACT?
Unless otherwise stated, all the section references in
this presentation are with reference to Indian
Contract Act-1872:
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Sec2 (h) An agreement enforceable by law is a contract.
So:
Contract = Agreement + Enforceability in a court of
Law
Now this leads us to another term ‘agreement’.
What is an agreement? 2
3. WHAT IS AN AGREEMENT?
Sec2 (e) Every promise and every set of
promises, forming the consideration for each
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other, is an agreement:
Promise/(s) Promise/(s)
.->
(in return) Agreement
Now this leads us to another term ‘promise’.
What is a promise?
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4. WHAT IS A PROMISE?
Sec 2(b) When the person to whom the proposal is
made signifies his assent thereto, the proposal
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is said to be accepted. A proposal, when accepted,
becomes a promise.
Promise = Proposal/Offer + Acceptance
Now this leads us to another term ‘proposal’.
What is a proposal?
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5. WHAT IS A PROPOSAL?
Sec 2 (a) When one person signifies to another his
willingness to do or to abstain from doing
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anything, with a view to obtaining the assent of
that other to such act or abstinence, he is said to
make a proposal:
So diagrammatically we can understand a contract
as following:
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7. WHAT IS ‘VOID ABINITIO’ ?
The term ‘void abinitio’ means void from the very
beginning.
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So can there be a contract which is void abinitio?
Ans: Even though in learned circles we hear people
talking about “a void abinitio contract” it is a
misnomer!
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8. THEN, WHAT ARE THEY REFERRING TO?
In such cases the reference is to void agreements
(not contracts).
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Yes an agreement not a contract. For, such
agreements do not reach the fourth step and
hence do not become contracts. This is clearer
when we see the definition of ‘void agreement’.
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9. WHAT IS A ‘VOID AGREEMENT’?.
Sec 2(g) An agreement not enforceable by law is
said to be void.
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Examples of void agreements:
An agreement made by incompetent parties
(Minor/of unsound mind/Incapacitated Person for
other reason) is void. (Sec-11)
Any agreement with a bilateral mistake- as to
essential fact(s)- is void. (Sec-20)
Agreements which have unlawful consideration
are void. (Sec- 10) (Sec-24) 9
10. EXAMPLES OF VOID AGREEMENTS
(CONTD.):
An agreement with a unlawful object is void.
(Sec- 10) & (Sec-24)
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Agreements made without consideration is void.
(Sec-25)
Agreement in restraint of marriage of any major
person is void (absolute restriction). (Sec 26)
Agreement in restraint of trade is void.
(Exception :reasonable reason) (Sec 27)
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11. EXAMPLES OF VOID AGREEMENTS
(CONTD.):
Agreement in restraint of legal proceedings is
void. (Sec 28)
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An agreement the terms of which are uncertain is
void. (Sec 29)
An agreement by way of wager
(betting/gambling) is void. (Sec 30)
An agreement contingent upon the happening of
an impossible event is void. (Sec 36)
Agreement to do an impossible act is void. (Sec
56)
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12. ALL CONTRACTS ARE VALID WHEN MADE.
We also say void and voidable contracts…
What are those?
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As defined earlier, all contracts are valid when
made. Enforceability of contracts would change
when additional factual/ circumstantial features
surface.
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14. WHAT IS A ‘VOIDABLE CONTRACT’?
Sec 2(i) An agreement which is enforceable by law
at the option of one or more of the parties-
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thereto, but not at the option of the other or
others, is a voidable contract:
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15. NOW WHAT IS A ‘VOID CONTRACT’?
Sec 2(j) A contract which ceases to be enforceable
by law becomes void when it ceases to be
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enforceable.
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16. DISTINCTION BETWEEN VOID AND
VOIDABLE CONTRACTS:
Void Voidable
Is valid when made but A ‘voidable contract’ is
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subsequently becomes voidable at the option of
unenforceable on certain the aggrieved party, and
grounds hence remains valid
until such rescission.
Eg: Eg:
Contracts caused by Contracts caused by
mistake are void. coercion, undue
influence, fraud and
misrepresentation are 16
voidable.
17. GROUNDS WHICH MAKE A CONTRACT VOID
Supervening impossibility
Subsequent illegality
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Repudiation of a voidable contract
When the occurrence of an event becomes
impossible, whose occurrence is the contingency
of a contingent contact.
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18. THE PROOF OF THE PUDDING IS IN THE
EATING.
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19. (1) What is 'Null
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and Void'?
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20. ANSWER:
It means the same as Void.
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The term ‘null’ is nowhere mentioned in
Indian Contract Act-1872. This has crept
through commentaries, judicial or
otherwise. Over a period of time it has
come into vogue. Hence, the addition of
'null' can only mean addition of more
emphasis on the term 'void'.
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21. (2) Breach of utmost
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good faith in a
insurance contract
will be a void or
voidable contract?
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22. ANSWER:
Breach of utmost good faith in an
insurance contract will be a voidable
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contract.
Why?
Because, contracts caused by
coercion, undue influence, fraud and
misrepresentation are voidable at 22
the option of the aggrieved party.
23. (3) What is the
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difference between
an enforceable
contract and a void
contract ? 23
24. ANSWER:
The out right distinction is: a void contract is not
enforceable by a court, whereas an enforceable
contract is. A few other finer points, which
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further elucidate the above assertion are as
following:
An unenforceable contract is one which is valid in
itself, but is not capable of being enforced in a
court of law because of some technical defect(s);
such as:
Absence of the contract in writing. For example, an
oral arbitration agreement is unenforceable
because the law requires an arbitration
agreement to be in writing. 24
25. ANSWER- (CONTD.):
Where a contract is required to be registered and it
is not registered. (Eg: in case of transfer of an
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immovable property)
Where stamping of the contract is necessary and
the contract lacks requisite stamping.
Where a contract suffers the limitations contained
in The Limitation Act, 1963.
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26. EXAMPLES OF CONTRACTS WHICH ARE NOT
ENFORCEABLE –DUE TO APPLICATION OF
LIMITATION ACT-1963
In case of a contract for payment of wages, except
in the case of payment to a seaman, if the suit is
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filed after three years from the date when the
wages became due.
In case of a contract for the payment of the price
of food or drink sold by the keeper of a hotel,
tavern or lodging house, if the suit is filed after
three years from the date when food or drink is
delivered.
In case of a contract for payment of price of
lodging, if the suit is filed after three years from
the date when the price becomes payable . 26
27. EXAMPLES OF CONTRACTS WHICH ARE NOT
ENFORCEABLE –DUE TO APPLICATION OF
LIMITATION ACT -1963 (CONTD.)
In case of a contract for the payment of
compensation against a carrier for losing or
injuring goods, if the suit is filed after three years
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from the date when the goods ought to have been
delivered.
In case of a contract for the payment of the price
of goods sold and delivered to be paid for after the
expiry of a fixed period of credit; if the suit is filed
after three years from the date when the period
of credit expired.
In case of a contract for the repayment of the
money lent; if the suit for recovery is filed after
three years from the date when the loan was 27
made.
28. EXAMPLES OF CONTRACTS WHICH ARE NOT
ENFORCEABLE –DUE TO APPLICATION OF
LIMITATION ACT -1963 (CONTD.)
In case of a contract for the payment of the price
of goods sold and delivered to be paid for after the
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expiry of a fixed period of credit; if the suit is filed
after three years from the date when the period
of credit expired.
In case of a contract for compensation for breach
of a promise to do anything at a specified time, or
upon the happening of a specified contingency; if
the suit is filed after three years from the date
when the time specified arrived or the
contingency happened.
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29. EXAMPLES OF CONTRACTS WHICH ARE NOT
ENFORCEABLE –DUE TO APPLICATION OF
LIMITATION ACT -1963 (CONTD.)
In case of a contract for the payment on a bill of
exchange accepted, payable at a particular place;
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if the suit for recovery is filed after three years
from the date when the bill is presented at that
place.
In case of a contract, which is not specially
provided for in Limitation act -1963; when a suit
is filed for compensation, after three years from
the date when the contract is broken, express or
implied, or if there are successive breaches, if the
suit is instituted after three years from the date
when such breach occured. 29
30. CREDITS & ACKNOWLEDGEMENTS:
Google
facebook
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Wikipedia
www.icai.org
http://www.vakilno1.com
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31. Way forward:
The essential features of a
contract are enlisted in Section-
10. A general discussion on
contracts will not be complete
without visiting those
provisions.
As we part:
“There's not a note of mine
that's worth the noting.” ☺
-William Shakespeare (in "Much Ado about
Nothing")
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