void & voidable contracts
TRANSCRIPT
VOID & VOIDABLE CONTRACTS-
A BRIEF DISCUSSION
CA Siddharth Ranjan
“I like not fair terms and a villain's mind.”
-William Shakespeare (in The merchant of Venice)
CA S
iddharth
Ranjan
1
WHAT IS A CONTRACT?
Unless otherwise stated, all the section references in
this presentation are with reference to Indian
Contract Act-1872:
________________________________________
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
CA S
iddharth
Ranjan
WHAT IS AN AGREEMENT?
Sec2 (e) Every promise and every set of
promises, forming the consideration for each
other, is an agreement:
Now this leads us to another term ‘promise’.
What is a promise?
3
CA S
iddharth
Ranjan
Promise/(s) Promise/(s).->
Agreement(in return)
WHAT IS A PROMISE?
Sec 2(b) When the person to whom the proposal is
made signifies his assent thereto, the proposal
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?
4
CA S
iddharth
Ranjan
WHAT IS A PROPOSAL?
Sec 2 (a) When one person signifies to another his
willingness to do or to abstain from doing
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:
5
CA S
iddharth
Ranjan
DIAGRAMMATIC REPRESENTATION:
Proposal Promise Agreement Contract
6
CA S
iddharth
Ranjan
WHAT IS ‘VOID ABINITIO’ ?
The term ‘void abinitio’ means void from the very
beginning.
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!
7
CA S
iddharth
Ranjan
THEN, WHAT ARE THEY REFERRING TO?
In such cases the reference is to void agreements
(not contracts).
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’.
8
CA S
iddharth
Ranjan
WHAT IS A ‘VOID AGREEMENT’?.
Sec 2(g) An agreement not enforceable by law is
said to be void.
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
CA S
iddharth
Ranjan
EXAMPLES OF VOID AGREEMENTS
(CONTD.):
� An agreement with a unlawful object is void.
(Sec- 10) & (Sec-24)
� 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)
10
CA S
iddharth
Ranjan
EXAMPLES OF VOID AGREEMENTS
(CONTD.):
� Agreement in restraint of legal proceedings is
void. (Sec 28)
� 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)
11
CA S
iddharth
Ranjan
ALL CONTRACTS ARE VALID WHEN MADE.
We also say void and voidable contracts…
What are those?
As defined earlier, all contracts are valid when
made. Enforceability of contracts would change
when additional factual/ circumstantial features
surface.
12
CA S
iddharth
Ranjan
NATURE OF CONTRACTS:
Enforceability
Valid Voidable Void
13
CA S
iddharth
Ranjan
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-
thereto, but not at the option of the other or
others, is a voidable contract:
14
CA S
iddharth
Ranjan
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
enforceable.
15
CA S
iddharth
Ranjan
DISTINCTION BETWEEN VOID AND
VOIDABLE CONTRACTS:
Void Voidable
Is valid when made but
subsequently becomes
unenforceable on certain
grounds
A ‘voidable contract’ is
voidable at the option of
the aggrieved party, and
hence remains valid
until such rescission.
Eg:
Contracts caused by
mistake are void.
Eg:
Contracts caused by
coercion, undue
influence, fraud and
misrepresentation are
voidable.16
CA S
iddharth
Ranjan
GROUNDS WHICH MAKE A CONTRACT VOID
� Supervening impossibility
� Subsequent illegality
� Repudiation of a voidable contract
� When the occurrence of an event becomes
impossible, whose occurrence is the contingency
of a contingent contact.
17
CA S
iddharth
Ranjan
THE PROOF OF THE PUDDING IS IN THE
EATING.
18
CA S
iddharth
Ranjan
(1) What is 'Null
and Void'?
19
CA S
iddharth
Ranjan
ANSWER:
It means the same as Void.
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'.
20
CA S
iddharth
Ranjan
(2) Breach of utmost
good faith in a
insurance contract
will be a void or
voidable contract?21
CA S
iddharth
Ranjan
ANSWER:
Breach of utmost good faith in an
insurance contract will be a voidable
contract.
Why?
Because, contracts caused by
coercion, undue influence, fraud and
misrepresentation are voidable at
the option of the aggrieved party.22
CA S
iddharth
Ranjan
(3) What is the
difference between
an enforceable
contract and a void
contract ? 23
CA S
iddharth
Ranjan
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 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
CA S
iddharth
Ranjan
ANSWER- (CONTD.):
Where a contract is required to be registered and it
is not registered. (Eg: in case of transfer of an
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.
25
CA S
iddharth
Ranjan
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
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
CA S
iddharth
Ranjan
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 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 made.
27
CA S
iddharth
Ranjan
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
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.
28
CA S
iddharth
Ranjan
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;
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
CA S
iddharth
Ranjan
CREDITS & ACKNOWLEDGEMENTS:
� Wikipedia
� www.icai.org
� http://www.vakilno1.com
30
CA S
iddharth
Ranjan
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")
31CA Siddharth Ranjan
Way forward:
32CA Siddharth Ranjan