BUSINESS LAW (Spring Term ‘20)

Instructor: Misha Zaheer

INVALIDATING FACTORS: VOID & VOIDABLE

AGREEMENTS

Valid Contract

A contract that satisfies all the conditions prescribed by law

Void Contract

A contract which was valid when entered into but which subsequently became void due to
impossibility of performance, change of law or some other reason.

Section 2(j) of the Contract Act, 1872 reads:

A contract which ceases to be enforceable by law becomes void when it ceases to be

enforceable.

E.g. X offers to marry Y, Y accepts this offer. Y dies. The contract became void upon the death
of Y.

Void Agreement

Section 2(g) of the Contract Act reads:

An agreement not enforceable by law is said to be void.

Such agreements are void-ab-initio i.e. unenforceable from the time that they are made. E.g. an
agreement with a minor or a person of unsound mind is void-ab-initio.

The following types of agreements have been expressly declared void under various headings of
the Contract Act, 1872: agreements with persons incompetent to contract (s 10 & 11);
agreements entered into through a mutual mistake of fact between parties (s 20); agreements, the
object or consideration of which is unlawful (s 23) or partly unlawful (s 24); agreements without
consideration (s 25); agreements in restraint of trade (s 27); agreements in restraint of legal
proceedings (s 29); uncertain agreements.

For example a clause in a contract that states that in case of breach no legal action shall be
brought will be void because it restricts the parties from enforcing their legal rights.

X agrees to sell Y a hundred tons of oil. X is an importer of different kinds of oil. There is no
way to determine which kind of oil was intended for the purpose of the agreement and hence the
agreement is void for want of certainty.

1
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

X agrees to sell Y his horse for Rs. 50,000 or Rs, 1 lakh. The price at which the horse is being
sold is uncertain and hence the agreement is void.

Voidable Contract

An agreement which is enforceable by law at the option of one or more of the parties thereon but
not at the option of the others, is a voidable contract. Section 2(i) reads:

A voidable contract is one which can be set aside or repudiated or avoided at the option
of the aggrieved party.

Until the contract is set aside by the aggrieved party it remains a valid contract. E.g. if there is
some person whose consent has been obtained by coercion or undue influence or fraud or
misrepresentation, the contract is voidable at the option of that person. X threatens to kill Y if Y
does not sell him his car for Rs. 5 lakhs. Y agrees to sell on the basis of coercion. Such a contract
is voidable at the option of Y, within reasonable time.

DISTINCTION VOID AGREEMENT VOIDABLE

CONTRACT
1. Void-ab-initio Void from the very beginning Valid when made and
continues to be valid till
repudiated by aggrieved
party
2. Which essential of contract An essential element of the Free consent of the party
missing contract is missing is missing
3. Enforceability Unenforceable Continues to be
enforceable till
repudiated by the
aggrieved par
4. Right of third party Third party cannot acquire any Third party who
rights purchases the goods in
good faith and
consideration before the
contract is repudiated,
acquires good title to the
goods
5. Effect of lapse of reasonable Even upon expiry of reasonable If aggrieved party does
time time, a void agreement can never not repudiate it till lapse
become valid of reasonable time, the
contract becomes valid
6. Damages No question of damages arises Aggrieved party may
claim damages

2
 BUSINESS LAW (Spring Term ‘20)
Instructor: Misha Zaheer

Illegal Agreement

An agreement, the object of which is unlawful. Such an agreement cannot be enforced by law.
Illegal agreements are always void-ab-initio.

X agrees to pay Y Rs. 1 million to kill Z. Y kills Z but X refuses to pay. Y cannot recover the
money from X because the object of the agreement was unlawful and hence the agreement was
illegal.

Note: all collateral contracts arising from illegal agreements will become void. So for example if
W lends X the Rs. 1 million to pay to Y for killing Z. since the main agreement between X and Y
is illegal the collateral to that agreement i.e. the agreement between W and X is also void. Hence,
W will not be able to recover his money from X if X decides not to pay.

Unenforceable Contract

A contract which is actually valid but cannot be enforced due to a technical defect i.e. lack of
stamp or writing. Such contracts can become enforceable if and when the technical defects are
removed. E.g. arbitration agreements are meant to be in writing, an oral agreement to arbitrate is
hence unenforceable.