How can a contract be declared void or voidable

Written by: Nitya Prasad

INTRODUCTION

The term void agreement is covered under Indian contract act 1872 in section 23 to section 30 and section 56 and voidability of an agreement is defined under Indian contract act 1872 in section 19 and other section discussed below.

Section 2 (h) of Indian Contract Act 1872 prescribes the definition of contract as “an agreement enforceable by law is a contract”. The definition of Agreement according to contract law can be written as prescribed in Section 2(e) which states that “Every promise and every set of promises, forming the consideration for each other, is an agreement”

The contract is a two-way transaction between two or more than two parties forming a contract. Every contract has to go through several stages beginning with the stage of negotiating during which the parties discuss and negotiate proposals as also the consideration resulting finally in the acceptance of proposals. There is no need for a contract to be formed in writing it can be oral and written both. There can be an equality binding contract based on oral agreement unless there is a law which requires the agreement to be in writing.[1]

An agreement to be a contract should follow all conditions prescribed in the Indian Contract Act 1872 under Section 10. All the contracts are agreement but all the agreement are not contract, the agreement can be made on promise and consideration of each party involved in the agreement but the contract can be made only if it fulfills the elements of section 10 Indian Contract Act 1872.

The contract can be invalid and declared void or voidable when it does not follow the law or there is a breach of any law in the contract. There is some condition prescribed in the Indian Contract Act 1872 on which a contract can be void or voidable. Let us discuss the conditions on which a contract can be declared void or be voidable and every contract should not follow all these elements.

VOIDABLE CONTRACT

The term “Voidable Contract” is defined under Indian Contract Act 1872 in Section 2 (I) which states that, “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”.

In many cases, the contract was declared voidable due to lack of consent by either parties in the contract. There can be other factors which determine the voidability of contracts such as undue influence, misrepresentation, coercion and other factors which are mentioned under the Indian Contract Act 1872.

Legal provisions relating to voidable contract in ICA 1872:-

Section 19 of the act talk about the voidability of an agreement without free consent and it says that, When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused.

A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that he shall be put in the position in which he would have been if the representation made had been true.

Exception- If such consent was caused by misrepresentation on by silence, fraudulent within the meaning of section 17, the consent, nevertheless, is not voidable, if the party whose consent was so caused had the means of discovering the truth with ordinary diligence.

Section 19 A - Power to set aside contract induced by undue influence, - When consent to an agreement is caused by undue influence, the agreement is a contract voidable at the option at the party whose consent was so caused.

Any such contract may be set aside either absolutely or, if the party who was entitled to avoid it has received any benefit thereunder, upon such terms and conditions as to the Court may seem just.

Effect of Undue Influence- the doctrine of undue influence has incorporated in Section 16 of the Indian Contract Act. In case of undue influence, the court may say that the contract is voidable and can set aside the contract.

Illustration

A’s son has forged B’s name to a promissory note. Y, under threat of prosecuting A’s son, obtains a bond from A for the amount of the forged note. If Y file a suit on this bond, the Court may set the bond aside.

Fraud:- A elaborate definition of fraud has been given by Lord Herschell in Derry v. Peek[2], According to him, fraud statement “made knowingly, or without belief in its truth, recklessly careless, whether it be true or false”. Therefore fraud is a false representation of a thing which the person who represented does not believe it to be true.

The definition of Fraud is given under Section17 of Indian Contract Act. It says that ‘Fraud” means and includes any of the following acts committed by the party to a contract, or with the connivance or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract.

Effect: - If any contract is performed by false representation or fraud than that contract will be voidable at the option of the party who represent it falsely under Section 19 of I.C.A.

Illustration:- R intending to deceive S, Falsely represents that five hundred mound’s of indigo are made annually at R’s factory, and thereby induces B to buy the factory. The contract is voidable at the option of S.

Misrepresentation:- Section 18 of the Indian contract act defines misrepresentation as –

(1) The positive assertion in a matter not warranted by the information of the person making it, of that of which is not true, though he believes it to be true;

(2) Any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him by misleading another to his prejudice or to the prejudice of any one claiming under him;

(3) Causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.

Effect of Misrepresentation: - When the consent to an agreement is taken by misrepresentation in a contract then the contract is voidable at the option of the party whose consent was so caused. In Hindustan General Insurance Society v. S. Subramaniam[3], the respondent had furnished incorrect information in proposed form for the insurance of a truck and truck met with an accident as a result of which the claim was made by the respondent. The trial Court and the lower appellate court held that misdescription with regard to the carrying capacity of the vehicle was a material misrepresentation and therefore the insurance company was entitled to avoid the insurance on this account. In the second Appeal The Madras High Court held that “ In our view, it is clear because of the misrepresentation in the proposal form that the licensed-carrying capacity was 5 tons the Insurance Company issued this policy, at the rate and on these terms. As the insurance company had been induced because of the misrepresentation the company is entitled to repudiate the contract.”

AGREEMENT DECLARED TO BE VOID

There are some agreements which can be declared void under the Indian Contract Act, on the basis of following Grounds:-

1. Unlawful agreements (Section 23).

2. Agreements without consideration (Section 25).

3. Agreements in restraint of marriage (Section 26).

4. Agreements in restraint of trade (Section 27).

5. Agreement in restraint of legal proceedings (Section 28).

6. Agreements void for uncertainty (Section 29).

7. Agreement by way of wager (Section 30).

8. Agreements to do Impossible acts (Section 56).

Section 23 provides that agreement in which the object or consideration is forbidden by law is unlawful and therefore void. In Re Mohmoud and Ispahani [4], the plaintiff contracted to sell and deliver to the defendant a quantity of linseed oil and safe, or purchase of which without a license was forbidden. Before the contract was entered was entered into, the defendant falsely assured him that he possessed a license. Later he refused to accept on the ground that he did not possess the requisite license. The plaintiff therefore, sued him claiming damages for non-acceptance of linseed oil. The court refused to entertain the action as the order was “clear and unequivocal declaration by the Legislature in the public interest that this particular kind of contract shall not be entered into.

Section 25 of the act provides that, “Agreement without consideration, void, unless it is in writing and registered or is a promise to compensate for something done or is a promise to pay a debt barred by limitation law.

Illustration: - (a) A promise, for no consideration, to give to B Rs. 1,000. This is a void agreement.

(b) R, for natural love and affection, promises to give his son, T Rs. 1,000. R put his promise to T into writing and registers it. This is a contract.

In this case, Durga Prasad v. Baldeo[5]- “The plaintiff built a market at the desire of the Collector of the District. The defendant who occupied one of the shops in the market agreed to pay a certain commission on all goods sold through him in the market. A suit brought by the plaintiff on the breach of the said promise was dismissed on the ground that the plaintiff built the market at the desire of the collector and not that of the defendant and hence the promise was without consideration and could not be enforced.

Under Section 26 of the Indian Contract Act, an agreement in restraint of marriage of any person other than a minor is void. There is only an exception to this clause provided in section 6 is then of an agreement to restrain minor from marriage.

Section 27 of contract act provides that “Every agreement by which anyone is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void.”

The exception to this provision is provided that “one who sells the goodwill of a business, may agree with the buyer to restrain from carrying on a similar business within specified limits so long as the buyer or any person deriving title to the goodwill from him carries on a like business therein provided that such limits appear to the court reasonable regard being had to the nature of the business”

28 Agreements in restraint of legal proceedings, void

Every agreement,—

(a) by which any party thereto is restricted absolutely from enforcing his rights under or in respect of any contract, by the usual legal proceedings in the ordinary tribunals, or which limits the time within which he may thus enforce his rights; or

(b) Which extinguishes the rights of any party thereto, or discharges any party thereto, from any liability, under or in respect of any contract on the expiry of a specified period so as to restrict any party from enforcing his rights, is void to that extent

Section 29 Agreements void for uncertainty- “Agreements, the meaning of which is not certain, or capable of being made certain, are void.”

Illustration: - A agrees to sell B “a hundred tons of oil”. There is nothing whatever to show what kind of oil was intended. The agreement is void for uncertainty.

Section 30- Agreements by way of wager – “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.”

Section 56 provides:- “A contract to do an act which, after the contract is made, becomes impossible, or by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful.”

Illustration: - (a) A agrees with B to discover treasure by magic. The agreement is void.

(b) A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract becomes void.

CONCLUSION

By the above discussion, we can see that the contract made between persons can be valid or invalid under the Indian contract on the basis of the above discussion. Therefore a person who is making any agreement or contract with other person should consider all the points and should make a legal contract, otherwise if it comes under the category of fraud, false representation, anything which is prohibited under the Indian contract act, the court may declare the contract null and void or voidable at the option of parties. These are some important points that should be considered in a void or voidable agreement.

[1] Tarsem Singh v. Sukhminder Singh, AIR 1998 SC 1400, 1403 [2] 90 (1889) 11 AC 337 at p. 374. [3] AIR 1975 Mad 162 [4] (1921) 2 KB 716 [5] ILR (1880) 3 ALL 221