VOIDABLE AGREEMENT: A STUDY

3.5 Law of Contract

Submitted by

Subham Das

UID: SM0117051

B.A. L.L.B. 2nd year, 3rd semester

Faculty-in-charge

Dr. Yugal Kishore

National Law University, Assam

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TABLE OF CONTENTS

1. Introduction……………………………………………………………... 3-4
1.1 Literature Review…………………………………………………... 3-4
1.2 Scope and Objectives………………………………………………. 4
1.3 Research Questions………………………………………………… 4
1.4 Research Methodology…………………………………………….. 4
2. Voidable Agreement under Indian Contract Act 1872……………….... 5-8
2.1 Important Cases……………………………………………………. 6-8
3. Conditions for Voidable Agreements………………………………….. 9-12
3.1 Under Indian Contract Act 1872………………………………….. 9-12
3.2 Under Other Acts…………………………………………………. 12
3.3 Exceptions………………………………………………………… 12
4. Difference between Voidable and Void Agreements…………………. 13
5. Conclusion…………………………………………………………….. 14
6. Bibliography…………………………………………………………... 15

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 1. Introduction

This research paper attempts to study the concept of Voidable Agreements under Indian
Contract Act 1872. In order to understand how a contract becomes voidable and what the
term voidable means from a legal perspective it is essential to first understand the concept of
agreement and contract. The main conditions necessary for an agreement and also
conditions that are required for an agreement to become voidable would be discussed.

The paper would also look into the circumstances under which an agreement becomes
voidable in Indian law under Indian Contract Act 1872. In order to understand the
practicability of how an agreement can become voidable certain important cases would also
be looked into in this paper. Moreover the difference between voidable and void agreement
would also be briefly discussed.

1.1 Literature Review

 Avtar Singh, Contract and Specific Relief, Eastern Book Company

This book gives the researcher an ample amount of information regarding the provisions of
the Indian Contract Act, 1872. The framework, provisions and principles of the Act are
thoroughly explained in the book which helped the researcher into chaptering the contents of
the topic with the relevant sections.

 Pollock & Mulla, Indian Contract and Specific Relief Acts, Volume 1, Lexis Nexis
Publications
This book has extended explanations on the contents and elements of Section 28 which
helped the researcher into penning them down. It also includes mentions of relevant cases
which helped to cite the facts of certain cases associated to the provisions given under
‘agreements in restraint of legal proceedings’. It has section-wise explanations of the bare act,
which is a great tool for the researcher to arrange the information accordingly.

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  Dr. Ashok K. Jain, Law Guide for Judicial Service Examinations; Volume 1, Ascent
Publications
This book is a guide for judiciary aspirants. This book includes different laws in a
summarized version, including Law of Contract, Limitation and Torts. This book also guided
the researcher to understand the provisions of the Act and also, it guided the researcher to
understand and explain the concepts of agreements, contract, void agreements and such
others.

1.2 Scope and Objectives

Scope

The Scope of this research is to understand the concept of voidable agreements under Indian
Contract Act 1872 and also to analyse the conditions under which a contract becomes
voidable and its exceptions. It also tries to explore the difference between voidable and void
agreements.

Objectives: -

 To understand the concept of voidable agreement under the Indian Contract Act 1872.
 To analyse the conditions for a contract to become voidable.
 To explore the difference between voidable and void agreements.

1.3 Research Questions

 What are voidable agreements under the Indian Contract Act 1872?
 What are the conditions necessary for a contract to become voidable?
 What is the difference between voidable and void agreements?

1.4 Research Methodology

In this research work, the Doctrinal Method of Explanatory Research Design has been
employed for conducing the research. Only secondary sources such as books, articles and
journals have been used for the collection of information for the research work.

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 2. Voidable Agreement Under Indian Contact Act 1872

As any commercial activity requires understanding among people concerned. This

understanding is often reduced to give effect to the intentions of the parties. Such formal
versions are known as Contracts, they put rights and obligations for various parties to
facilitate easy performance of these contractual obligations. The Indian Contract Act, 1872
codifies the legal principles that govern such contracts.

The term “contract” is defined in Section 2(h) of the Indian Contract Act, 1872, as follows:
“An agreement enforceable by law is a contract.” Thus for the formation of a contract there
must be- (1) an agreement, and (2) the agreement should be enforceable by law. “Agreement”
is defined in Section 2(e) as “every promise and every set of promises forming the
consideration for each other”. And a promise is defined as an accepted proposal. Section 2(b)
says: “A proposal when accepted, becomes a promise.” This is another way of saying that an
agreement is an accepted proposal. The process of definitions comes down to this: A contract
is an agreement; an agreement is a promise and a promise is an accepted proposal. Thus
every agreement, in its ultimate analysis, is the result of a proposal from one side and its
acceptance by the other. An agreement is regarded as a contract when it is enforceable by
law. In other words, an agreement that the law will enforce is a contract. The conditions of
enforceability are stated in Section 10 According to this section, an agreement is a contract
when it is made of some consideration, between parties who are competent, with their free
consent and for a lawful object.1

It is to be noted that all contracts are agreements but all agreements are not contracts. The
conditions which need to be fulfilled for an agreement to become a contract are: -

 There is some consideration for it

 The parties are competent to the contract
 The parties have free consent
 The object is lawful

1
Avtar Singh, Contract and Specific Relief, Eastern Book Company

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Voidable agreements are agreements enforceable at the option of the aggrieved party it
remains valid until the party nullifies it. There are certain conditions under which an
agreement can become voidable under Indian Contract Act, 1872.

Section 2(i) describes a voidable agreement as one which is enforceable by law at the option
of one of the parties but not at the option of the others. Section 2(g) describes that an
agreement not enforceable by law is void. The language of clause (g) and (i) would not be
accurate in England. What clause (i) indicates is that one of the parties (or possibly more) can
at its option maintain the contract, or resist its enforcement, or take active steps to set it aside
and the other party has no such option. Such a contract is voidable. 2 When rescinded by a
party entitled to rescind, it becomes void. Nevertheless, it is in the first instance a contract,
being valid until rescinded. Since the contract is voidable it gives the person a right of choice
or election. Such a right, once exercised is exhausted. If such a person, by express notice or
by conduct; and if he has elected to avoid, he cannot later be allowed to affirm. There is no
locus poe nitentoe in either case.3 If the party having the option, affirms the contract, or fails
to exercise the right to to rescind within a reasonable time, so that the position of the parties
has been altered, he loses the right to rescind.4

The requirements for a contract for becoming voidable under the Indian Contract Act 1872 be
found under Section 19, 19A, 39, 53, and 55, its exceptions and also the contracts being
voidable other than the Indian Contract Act 1872 would be discussed in the next chapter.

2.1 Important Cases

 Faber v Sweet Style Mfg. Corp.

Issue: -Whether incompetence to contract exists when a party enters into a contract under the
compulsion of a mental disease or disorder but for which the contract would not have been
made.

Facts: - On September 23, 1961, Faber (Plaintiff) entered into a contract to purchase a plot of
land from Sweet Style Manufacturing Corp. (Defendant). Plaintiff had been diagnosed with
manic-depressive psychosis, and was in a manic phase from August to October 1961. On
October 8, 1961, Plaintiff was hospitalized in a mental institution. Before this time period,
2
Rajah of Venkatagiri v State of Andhra Pradesh AIR 1958 AP 522
3
Kunja Lal Bhuiya v hara Lal Bhuiya AIR 1943 Ca1162
4
Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications

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Plaintiff was generally frugal and cautious, but between September 23 and October 8, 1961—
the time between the contract signing and his hospitalization—Plaintiff hired a title abstract
company to perform a search on the plot of land, hired an employee to head the building
project, had a sign built on the land stating that Plaintiff Drug Company was coming soon,
hired an architect, filed a mortgage application, hired labourers, and filed plans with City
officials, among other things. Despite all this activity, closing was not to occur until October
20, 1961. Plaintiff’s pre-trial examination revealed that he understood the contract, but did
not explain the reasoning for his sudden change in behaviour. His doctor testified that on
September 23 he was “incapable of reasoned judgment. ”Defendant’s expert psychiatrist
testified that Plaintiff’s judgment was intact on September 23. Plaintiff sued to have the
contract rescinded on account of his incompetence at the time he signed the contract.

Held: - Yes. The trial court rescinds the contract because Plaintiff was incompetent to
contract and Defendant can be returned to status quo. Incompetence to contract exists when a
party enters into a contract under the compulsion of a mental disease or disorder but for
which the contract would not have been made.

 LaFleur v. C.C. Pierce Co.

Facts: - LaFleur’s (Plaintiff) right foot was injured at work. The company doctor told Plaintiff
that he had a sprained toe. Plaintiff entered into a written settlement agreement and release
with the company’s insurer (Defendant), which stated that Plaintiff could not seek additional
benefits “because of this injury.”� Plaintiff was diagnosed with a rare arterial disease that
resulted in the amputation of both of his legs. A doctor testified that Plaintiff’s accident at
work had injured his arterial system, which aggravated his pre-existing arterial disease, and
that the accident was causally related to the amputation of Plaintiff’s legs. Plaintiff sued for
rescission of the release. The trial court entered judgment for Defendants, finding that
Plaintiff had simply made an incorrect prediction about future events when he signed the
release. Plaintiff appealed.

Issue: - Whether a release of claims for personal injuries is voidable if, at the time of signing,
the parties were mistaken as to the existence of an injury.

Held: - Yes. The trial court’s ruling is reversed. A release of claims for personal injuries are
voidable if, at the time of signing, the parties were mistaken as to the existence of an injury.

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  Germantown Mfg, Co. v Rawlinson

Facts: - Robert Rawlinson (Defendant) was fired from The German town Manufacturing
Company (Plaintiff) for embezzling $327,011.22. Rawlinson told his wife, Joan (Defendant),
that he had taken about $20,000 from the company. Plaintiff’s representative visited the
Defendants’ home and had them sign two judgment notes, consenting to the entry of
judgments against them. The first note was for $160,000. The representative told the
Defendants that, since they had $160,000 readily available, the judgment was effectively
already satisfied. The second note was for an amount established by an affidavit from the
president of Plaintiff. The affidavit was not presented to the Defendants. Plaintiff’s
representative told the Defendants that Plaintiff had no interest in pursuing criminal
prosecution if the Defendants cooperated. Later, the president of Plaintiff completed his
affidavit, showing a total amount owed on the second note of $212,113.21, which included
over $45,000 in interest. The lower court allowed Joan’s judgment on the second note to be
reopened on the grounds of fraud, misrepresentation, duress, and lack of accountability for
the amount included in the second note. Plaintiff appealed.

Issue: - Whether a contract is voidable as unconscionable if: (1) the parties’ bargaining power
is significantly unequal and (2) the weaker party has no choice but to agree to the contract
terms dictated by the stronger party.

Held: - The trial court’s ruling is affirmed.  A contract is voidable as unconscionable if: (1)
the parties’ bargaining power is significantly unequal and (2) the weaker party has no choice
but to agree to the contract terms dictated by the stronger party.

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 3. Conditions for Voidable Agreement

3.1 Under Indian Contract Act 1872

Voidable contracts under this Act can be divided into two groups, namely contracts voidable
in their inception under s 19 on the ground of coercion, fraud, misrepresentation and under s
19A undue influence; and the contracts becoming voidable by subsequent default of one
party under s 39 (refusal of party to perform promise wholly), s 53 (impossibility created by
act of party), and s 55 (failure to perform at time fixed, time being of essence).5

Under Section 19: Voidability of agreement without free consent. - A contract is voidable
due to coercion, fraud and misrepresentation. In terms of fraud or misrepresentation if the
aggravated party insists that the contract shall be performed then he shall be put in a position
in which he would have been if the misrepresentation had been true. An exception to this rule
is that if such consent was caused by misrepresentation or by silence, fraudulent under the
meaning of Section 17, the contract nevertheless, is not voidable, if the party whose consent
was so caused had the means of discovering the truth with ordinary diligence, in other words
a fraud or misrepresentation which did not cause the consent to a contract of the party to
whom such fraud was practiced or to whom such misrepresentation was made, does not
tender a contract voidable.

Illustrations under Section 19:

(a) A, intending to deceive B, falsely represents that 500 maunds of indigo are made annually
at A’s factory, and thereby induces B to buy the factory. The contract is voidable at the option
of B.

(b) A, by a misrepresentation leads B erroneously to believe that 500 maunds of indigo are
made annually at A’s factory. B examines the accounts of the factory, which shows that only
400 maudas of indigo have been made. After this B buys the factory. The contract is not
voidable on account of A’s misrepresentation.

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Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications

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(c) A fraudulently informs B that A’s estate is free from encumbrance. B thereupon buys the
estate. The estate is subject to a mortgage. B may either avoid the contract, or may insist on
its being carried out, and the mortgage-debt redeemed.

(d) B, having discovered that a vein of ore on the estate of A, adopts means to conceal, and
does conceal, the existence of the ore from. Through A’s ignorance B is enabled to buy the
estate at an undervalue. The contract is voidable at the option of A.

(e) A is entitled to succeed to an estate at the death of B, B dies; C, having received

intelligence of B’s death, prevents the intelligence reaching A, and thus induces A to sell him
his interest in the estate. The sale is voidable at the option of A.6

Under Section 19 A: Power to set aside contract induced by undue influence. - When the
consent to an agreement is caused by undue influence, the agreement is a contract voidable at
the option of 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.

Illustrations under Section 19 A:

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

(b) A, a money-lender advances Rs 100 to B, an agriculturist, and by undue influence, induces

B to execute a bond of Rs 200 with interest at 6 per cent per peer month. The Court may set
the bond aside, ordering B to repay the Rs 100 with such interest as may deem just.7

Under Section 39: Effect of refusal of party to perform promise wholly. - When a party to
a contract has refused to perform, or disabled himself from performing, his promise in its
entirety, the promise may put an end to the contract, unless he has signified, by words or
conduct, his acquiescence in its continuance.

Illustrations under Section 39:

(a) A, a singer, enters into a contract with B, the manager of a theatre, to sing at his theatre
two nights in every week during the next two months, and B engages to pay her 100 rupees
6
Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications
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Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications

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for each night’s performance. On the sixth night A, wilfully absents herself from the theatre.
B is at liberty to put an end to the contract.

(b) A, a singer enters into a contract with B, the manager of a theatre, to sing at his theatre
two nights in every week during the next two months, and B engages to pay her 100 rupees
for each night’s performance. On the sixth night A, wilfully absents herself. With the assent
of B, A sings on the seventh night. B has signified his acquiescence in the continuance of the
contract, and cannot now put an end to it, but is entitled to compensation for the damage
sustained by him through A’s failure to sing on the sixth night.8

Under Section 53: Liability of party preventing event on which the contract is to take
effect. - When a contract contains reciprocal promises, and one party to the contract prevents
the other from performing his promise, the contract becomes voidable at the option of the
party so prevented; and he is entitled to compensation from the other party for any loss that
he may sustain in consequence of the non-performance of the contract.

Illustrations under Section 53:

A and B contract that B shall execute some work for A through a thousand rupees. B is ready
and willing to execute the work accordingly, but A prevents him from doing so. The contract
is voidable at the option of B; and, if he elects to rescind it, he is entitled to recover from A
compensation for any loss which he has incurred by its non-performance.9

Under Section 55: Effect of failure to perform at a fixed time, in contract when time is
essential. - When a party to a contract promises to do a certain thing at or before a specified
time, or certain things at or before a specified time, and fails to do such things at or before a
specified time, the contract, or so much of it as has not been performed, becomes voidable at
the option of the promisee, if the intention of the parties was that time should be of essence of
the contract.

Effect of such failure when time is not essential. - If it was not the intention of the parties
that time should be of essence of the contract, the contract does not become voidable by the
failure to do such thing at or before the specified time; but the promisee is entitled to
compensation from the promisor for any loss occasioned to him by such failure.

8
Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications
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Pollock, Mulla, Indian Contract and Special relief Acts Volume I, Lexis Nexis Publications

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Effect of acceptance of performance at time other than agreed upon. - If, in case of a
contract voidable on account of the promisor’s failure to perform his promise at the time
agreed, the promisee accepts performance of such promise at any time other than agreed, the
promisee cannot claim compensation for any loss occasioned by the non-performance of the
promise at the time agreed, unless at the time of acceptance, he gives notice to the promisor
of his intention to do so.

3.2 Under Other Acts

A contract may be voidable; not only under the Indian Contract Act 1872, but also under
other laws. A transfer by a guardian of minor’s property in violation of Section 29 of the
Guardians and Wards Act 1890, or under Section 8 Subsection (2) or (3) of the Hindu
Minority and Guardianship Act 1956, are voidable at the option of the minor. A transaction
covered by the second provision to Section 20 of the Madras Estates (Abolition and
Conversion into Ryotwari) Act 1948, being enforceable by the government, but not against it,
it is a voidable transaction.

3.3 Exceptions

The definition under Indian Contract Act 1872 was not intended to alter, and does not alter
the substantive law. A contract is not vitiated by a clause conferring on one party an option to
enforce the contract. A contract giving to one party the power to terminate is not a voidable
contract, and Section 19 of the Indian Contract Act 1872 does not apply to cases where the
contract itself contains a defeasance clause. The party who is given a right to terminate the
contract under it is entitled to do so unless the other party proves that the former has waived
his rights.10

4. Difference between Voidable and Void Agreements

10
Western India Life Insurance Co Ltd v Adima Sirkar AIR 1942 Cal 412

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The distinction between a void and a voidable contract lays in three aspects namely
definition, nature and rights.

(a) Definition: A void contract cannot be enforced at all. A voidable contract is an agreement
which is enforceable only at the option of one of the parties but not at the option of the other.
Therefore enforceability or otherwise divides the two types of contracts.

(b) Nature: By nature, a void contract is vali at the time when it is made but becomes
unenforceable and thus void on account of subsequent developments or events like
supervening impossibility, subsequent illegality etc. Repudiation of a voidable contract also
renders the contract void. Similarly a contingent contract might become void when the
occurrence of the event on which it is contingent becomes impossible.

On the other hand voidable contract would remain valid until it is rescinded by the person
who has the option to treat it as voidable. The right to treat it as voidable does not invalidate
the contract until such right is executed. All contracts caused by coercion, undue influence,
fraud, misrepresentation are voidable. Generally, a contract caused by mistake is void.

(c) Rights: As regards rights of the parties, in the case of a void contract there is no legal
remedy for the parties as the contract cannot be performed in any way. In the case of voidable
contract the aggravated party has a right to rescind it within a reasonable time. If it is so
rescinded, it becomes void. If it is not rescinded, it is a valid contract.

5. Conclusion

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After the completion of the research paper the researcher can conclude that voidable contracts
are contracts which can be rescinded by one party’s wishes as they have been at the receiving
end of coercion, fraud, misrepresentation, undue influence as under Section 19 and 19 A of
the Indian Contract Act 1872. Apart from Section 19 and 19A other sections which can make
a contact voidable are Section 39, 53, 55. It is also understood that apart from the Indian
Contract Act 1872 there are other Acts under which also a contract can become voidable. If
the aggravated party does decide to rescind the contract it becomes void. There are even some
exceptions which makes normally voidable agreements non voidable. Finally amongst other
differences one of the main difference between Voidable and Void contracts is that a void
agreement is void from the beginning but a Voidable one is valid till the aggravated party
decide to descend it. The distinction between voidable and void contracts mainly lays in three
aspects namely Definition, Nature, and Rights.

6. Bibliography

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Books:

 Pollock & Mulla, Indian Contract and Specific Relief Acts, Volume 1, Lexis Nexis
Publications
 Avtar Singh, Contract and Specific Relief, Eastern Book Company
 Dr. Ashok K. Jain, Law Guide for Judicial Service Examinations; Volume 1, Ascent
Publications
 The Indian Contract Act, 1872, Lexis Nexis Publications

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