Law of Contracts

LAW OF CONTRACTS – END TERM PAPER

SEMESTER II

Void and Voidable Agreements under Indian Contract

Act, 1872

SUBMITTED TO:
Prof. AMBRINA KHAN
KIRIT.P MEHTA SCHOOL OF LAW

SUBMITTED BY:
ANUJ JAIN
FY BBA.LLB (HONS)

ROLL NO: D001

SAP ID: 81022019060

Kirit P. Mehta School Of Law Page | 1

Law of Contracts

TABLE OF CONTENTS

Cover Page.................................................................................................................1

Table of Contents.......................................................................................................2

Introduction...............................................................................................................3

Aim............................................................................................................................4

Research Objectives..................................................................................................4

Methodology..............................................................................................................4

Limitations.................................................................................................................4

Hypothesis.................................................................................................................4

Chapter I: Types of Contract on the Basis of its Validity.........................................5

Chapter II: Void and Voidable Agreements..............................................................5

Chapter III: Void agreements under Indian Contract Act, 1872...............................6

Chapter IV: Voidable agreements under Indian Contract Act, 1872......................10

Conclusion...............................................................................................................12

Bibliography............................................................................................................13

Kirit P. Mehta School Of Law Page | 2

Law of Contracts

INTRODUCTION

The Indian Contract Act of 1872 governs contract law in India. The Contract Act, however, does
not aim to codify all contract law; it explicitly protects any usage or custom of trade or any event
of any contract that is not contradictory with the Act's requirements. The law of contract is
limited to the execution of civil obligations that have been established voluntarily. The law of
contract is unable to cover all types of agreements; many agreements fall outside of its scope
because they do not meet the requirements of a contract. A contract is a promise; a promise is an
accepted proposal; and a promise is a contract. As a consequence, every agreement is the result
of one party making a proposition and the other party accepting it. When a deal is enforceable by
law, it is considered a contract. An agreement is a contract if it is formed for a consideration,
between persons who are competent to contract, with free consent, and for a legal purpose,
according to Section 10 of the Act. But some agreements are considered void or voidable under
certain conditions as mentioned in the Indian Contract Act 1872. This paper will explore these
conditions and explain them with examples.

This paper aims to study and analyze void and voidable agreements under Indian Contract Act,
1872. The paper will study and analyze in detail the meaning of void and voidable agreements,
what constitutes a void or voidable agreement and the condition under which agreements are
considered void or voidable. The researcher was motivated to work on this research paper due to
lack of any extensive research about the topic and its importance in Contract Law.

Kirit P. Mehta School Of Law Page | 3

Law of Contracts

Aim:
The aim of this research paper is to study and analyze void and voidable agreements under
Indian Contract Act.

Research Objectives:
1. To understand void and voidable agreements.
2. To list out and understand provisions making agreements void under Indian Contract
Act, 1872.
3. To list out and understand provisions making agreements voidable under Indian Contract
Act, 1872.

Methodology:
In preparation of this research paper, a doctrinal method of research has been used to gather
subsequent research data from different sources, such as books, journals, research documents,
on-line legal databases, laws, etc.

Limitations:
This study is majorly based on secondary data obtained from research papers, journals and
articles, due to time and money restrains. The reliability and accuracy of the information gained
from the aforementioned sources can be questionable. Therefore, implications and results drawn
from the data may deviate from the accurate calculations.

Hypothesis:
Null Hypothesis (H0): Agreements can be void or voidable under Indian Contract Act, 1872
Alternate Hypothesis (H1): Agreements cannot be void or voidable under Indian Contract Act,
1872

Kirit P. Mehta School Of Law Page | 4

Law of Contracts

Chapter I: Types of Contract on the Basis of its Validity

1. Valid contract: A valid contract is one that has all of the fundamental components of a
contract. A legally binding contract may be enforced.

2. Void contract [Section 2(j)]: A void contract is one that is not enforceable by law. A void
contract is one that is no longer legally binding. A contract may be legal and binding on
the parties when it is first signed. It's possible that it'll become void in the future.

3. Voidable contract [Section 2(i)]: “A voidable contract is one that is enforceable by law at
the choice of one or more of the parties to it, but not at the option of others.” However,
until the injured party repudiates the contract, it remains valid and enforceable.

4. Unlawful contract: A contract is illegal if it is prohibited by law; or if it is of such a

character that, if allowed, would undermine the requirements of any legislation; or if it
includes or implies harm to another person or property; or if it is deemed immoral or
contrary to public policy by a court. These agreements are illegal under the law. These
are void-ab-initio void-ab-initio void-ab-initio.

“All void agreements are unlawful, but not all illegal agreements are invalid.”

5. Unenforceable contract: An unenforceable contract is one that is good in content but

cannot be enforced by law due to a technical flaw. These agreements are not invalid or
voidable.

CHAPTER II: Void and Voidable Agreements

Void Agreements:

A void contract is one in which there is no contract at all. The law cannot compel any party to
fulfil any legal duty, particularly the dissatisfied party, since they are not entitled to any
contractual protections. A void contract or invalid agreement is one that involves an agreement
to carry out an unlawful conduct. A contract between drug traffickers and customers, for

Kirit P. Mehta School Of Law Page | 5

Law of Contracts

example, is null and invalid since the conditions of the contract are unlawful. In such a situation,
neither side can take the contract to court to enforce it.

“An agreement not enforceable by law is said to be invalid,” according to Section 2 (g) of the
Indian Contract Act, 1872, and “A Contract which ceases to be enforceable by law becomes void
when it ceases to be enforceable,” according to Section 2 (j) of the Act. Thus, there are two kinds
of void contracts: -

1. Void ab Initio: - void-ab-initio, that is, unenforceable from the start

2. Void due to the impossibility of its performance: - A contract may also be declared
invalid if it is impossible to carry out. For example, if a contract is formed between two
parties A and B, but the contract's object becomes impossible to achieve during the
performance of the contract (due to action by someone or something other than the
contracting parties), the contract cannot be enforced in a court of law and is thus void.

Voidable Agreements:

An agreement which is enforceable by law at the option of the one or more of the parties, but not
at the option of others or others, is a voidable contract. Voidable Contract is valid unless one of
the parties has set it aside. Voidable Contract generally happens when one side of the party is
tricked into entering a contract by other party.

CHAPTER III: Void agreements as per the provisions of Indian Contract

Act, 1872

Any agreement with a bilateral mistake is void. (Section 20):- When both parties to an
agreement make a factual error that is fundamental to the agreement, the agreement is invalid.
For example, A agrees to purchase a horse from B. The horse turned out to be dead at the time of
the deal, but neither side was aware of this. The contract is null and invalid.

A contract, on the other hand, is not voidable simply because one of the parties made a factual
error. (Chapter 22)

Kirit P. Mehta School Of Law Page | 6

Law of Contracts

Agreements which have unlawful consideration and objects are void. (Section 23 & 24):-
The consideration or purpose of an agreement is illegal if it is prohibited by law or of such a
character that, if allowed, would undermine the requirements of any law, or if it is fraudulent,
entails damage to another's person or property, or if a court considers it immoral or contrary to
public policy.

The agreement is invalid if any portion of a single consideration for one or more items, or any
component of any one of several considerations for a single object, is illegal. However, if the
lawful and illegal parts of a contract are separable, the former would be enforced.

Agreements made without consideration is void. (Section 25):- An agreement without

consideration is invalid unless it is:

1. It is formed out of natural love and affection, and it is stated in writing and registered
under the legislation in effect at the time.
2. It is a commitment to pay someone who has already done something for the promisor
willingly.
3. It is a commitment to pay a debt that has beyond its due date.

Agreement in restraint of marriage of any major person is void. (Section 26):- Any
arrangement prohibiting a person other than a minor from marrying is null and invalid. The law
has a policy of discouraging agreements that restrict marital freedom. The restraint may be
general or partial, i.e., the party may be prohibited from marrying at all, for a specific period of
time, or from marrying a specific person or group of people. If the agreement prohibits the party
from marrying at all, for a specific period of time, or from marrying a specific person or group of
people, the agreement is null and void.

Agreement in restraint of trade is void. (Section 27):- To that extent, any agreement
prohibiting anybody from engaging in a legal profession, trade, or business of any sort is null and
invalid. There are two types of statute-created exceptions to the rule: -

Sale of Goodwill: - The selling of goodwill is the sole exemption stated in the proviso to section
27. “One who sells the goodwill of a business may agree with the buyer to refrain from carrying
on a similar business, within specified local limits, so long as the buyer, or any person deriving

Kirit P. Mehta School Of Law Page | 7

Law of Contracts

title to the goodwill from him, carries on a like business therein: Provided that such limits appear
to the court reasonable, having regard to the nature of the business,” it says.

Partnership Act: - The Partnership Act has four clauses that legitimize trade restriction
agreements. Section 11 allows partners to limit their mutual liberty throughout the firm's
existence by agreeing that none of them will engage in any business other than the firm's. They
may use Section 36 to prevent a departing partner from continuing on a comparable company for
a certain length of time or within certain geographical boundaries. Partners may reach a similar
agreement in the event of breakup or in anticipation of it.

Judicial Interpretational exception to the rule:

Exclusive Dealing Agreements: - Exclusive Dealing Agreements: - Exclusive Dealing A popular

business technique is for a producer or manufacturer to advertise his products via a single agent
or distributor, who pledges not to deal with any other manufacturer's goods. The Court said in
Percept D. Mark (India) Pvt. Ltd. v Zaheer Khan that a Negative Covenant in a contract that the
covenantee would not sell a competitor's comparable goods is not always in restriction of
commerce; it may also be in furtherance of trade.

Restraints upon Employee: - Negative covenants in a service agreement typically prohibit the
employee from working elsewhere throughout the time covered by the agreement. Trade secrets,
client names, and other proprietary information belong to the master, and the servant is not
allowed to reveal it to anyone else. Section 27 does not apply to this kind of agreement.

Agreement in restraint of legal proceedings is void. (Section 28):-

On the basis of public policy, an agreement claiming to remove the courts' authority is unlawful
and invalid. Two types of agreements are invalid under Section 28 of the Act:

1. An agreement prohibiting a party from pursuing his legal rights resulting from a contract
via regular legal procedures in ordinary tribunals.
2. An agreement that establishes a time restriction for enforcing contract rights.

However this is also not an absolute rule and it has two exceptions to it which is as follows:-

Kirit P. Mehta School Of Law Page | 8

Law of Contracts

1. This section does not make illegal a contract between two or more people in which they
agree that any dispute that may arise between them over any subject or class of subjects
will be referred to arbitration, and that only the amount awarded in the arbitration will be
recoverable in respect of the dispute.
2. This clause does not make unlawful any written contract between two or more people
agreeing to arbitrate a dispute between them that has already occurred, nor does it alter
any provision of current law regarding references to arbitration.

But right to Appeal does not come within the purview of this section. A party to a suit may agree
not to appeal against the decision.

An agreement the terms of which are uncertain is void. (Section 29):- Agreements whose
meaning is uncertain or incapable of being determined are invalid. An agreement must be
sufficiently clear in order for the court to assign it a practical significance in order for it to be
enforceable. An agreement to agree in the future is null and invalid since the parties' ability to
agree is unknown.

The contract will be considered as binding if just a portion or a clause of it is unclear, but the
remainder may be given a fairly definite interpretation. Similarly, if the agreement is completely
silent on price, it will be legal since Section 9 of the Sale of Goods Act, 1930 would apply in
such instance, and a fair price must be paid.

An agreement by way of wager (betting/gambling) is void. (Section 30):- Agreements formed

on the basis of a bet are invalid, and no action may be taken to recover anything allegedly gained
on a wager or entrusted to any person to follow the outcome of any game or other uncertain
event on which a wager is placed. The term "wager" is not defined in this section. However, a bet
may be defined as a commitment to pay money or its equivalent in exchange for the
determination or ascertainment of an unknown occurrence.

There are two exceptions to this rule, which are as follows: -

Horse Racing: - A subscription or donation, or an agreement to subscribe or contribute, towards

any plate, prize, or sum of money of the value or amount of 500 Rupees or above to the winner
or winners of any horse races is not invalid under this provision.

Kirit P. Mehta School Of Law Page | 9

Law of Contracts

Crossword Competitions & Lottery: - A competition is not a lottery if skill plays a significant
role in the outcome and rewards are given based on the merits of the answer. Otherwise, yes.
Literary contests that require the use of talent and in which an attempt is made to choose the best
and most skilled participant are therefore not wagers.

An agreement contingent upon the happening of an impossible event is void. (Section 36):-
A contingent contract is one in which the parties agree to do or not do something if a certain
event, which is a condition of the contract, occurs or does not occur. Contingent agreements to
do or not do anything if an impossible event occurs are invalid, whether or not the parties to the
agreement are aware of the impossibility of the occurrence at the time the agreement is formed.
For example, if two straight lines surround an area, A agrees to pay B 1000 Rupees. The contract
is null and invalid.

Agreement to do impossible acts is void. (Section 56):- An agreement to do an act that is

impossible in and of itself is null and invalid. A contract to do an act that becomes impossible or
illegal after the contract is formed due to an occurrence that the promisor could not avoid,
becomes invalid when the performance becomes impossible or unlawful.

CHAPTER IV: Voidable Contract as per provisions of Indian Contract

Act, 1872

Voidable Agreements as per provisions of Indian Contract Act, 1872:-

Voidability of agreements without free consent: - when consent to an agreement is caused by

coercion, fraud or misrepresentation the agreement is voidable at the option of the party whose
consent was so caused.

However, a party to a contract, whose consent was obtained by fraud or misrepresentation, may,
if he thinks fit, insist that the contract shall be performed.

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 of the party whose
consent was so caused. A contract is said to be induced by undue influence where the relation

Kirit P. Mehta School Of Law Page | 10

Law of Contracts

subsisting between the contracting parties are such that one of the parties is in a position to
dominate the will of the other.

In such a case the burden of proving that such a contract was not induced by undue influence
shall lie upon the person who is in a position to dominate the will of other.

Liability of a Party preventing event on which contract is to take effect: - When a contract
contains reciprocal promises and one party to contract prevents the other from performing his
promise, the contract becomes voidable at the option of the party so prevented. Obvious principle
is that a person cannot take advantage of his own wrong. For example, A and B enter into a
contract that B shall execute certain work for A for a certain sum of money. 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.

Effect of failure to perform at fixed time, in a contract in which time is essential: - When
time is essence of contract and party fails to perform in time, it is voidable at the option of other
party. A person who himself delayed the contract cannot avoid the contract on account of (his
own) delay.

Kirit P. Mehta School Of Law Page | 11

Law of Contracts

CONCLUSION

To secure the performance and enforceability of a contract, the contract should be a valid
contract. The Indian Contract Act considers certain agreements as void and these void
agreements can’t be enforced. Some agreements are also voidable and only one only party has
the power to make the agreement void. Therefore, it is very important to beware of what
agreements may constitute as void or voidable. Under Indian Contract Act, 1872, the following
agreements are considered void:

 Any agreement with a bilateral mistake

 Agreements which have unlawful consideration and objects
 Agreements made without consideration
 Agreement in restraint of marriage of any major person
 Agreement in restraint of trade
 Agreement in restraint of legal proceedings
 An agreement the terms of which are uncertain
 An agreement by way of wager
 An agreement contingent upon the happening of an impossible event
 Agreement to do impossible acts

Under Indian Contract Act, 1872, the following agreements are considered voidable:

 Lack of free consent

 Undue influence
 Prevention of performance by the other party
 Failure to perform in fixed time
 Consequences of rescission

Thus, the Null Hypothesis (H0): Agreements can be void or voidable under Indian Contract Act,
1872 is proved.

Kirit P. Mehta School Of Law Page | 12

Law of Contracts

BIBLIOGRAPHY

Acts:

1. Indian Contract Act,1872

Research Papers:

1. Saman Narayan Upadhyay, 'Legal Consequences of a Minor’s Agreement in India',

(2014), 35, Business Law Review, Issue 4, pp. 136-140,
https://kluwerlawonline.com/journalarticle/Business+Law+Review/35.4/BULA2014023

Articles:

1. Jajoria, R. (2018). Void & Voidable Agreements. Legalservicesindia. ISBN No: 978-81-
928510-1-3
https://www.legalservicesindia.com/article/315/Void-&-Voidable-Agreements.html

2. Sharma, D. (2021). Validity of a contract, voidable contract and void agreement as given
under Indian Contract Act, 1872. SCC Blog.
https://www.scconline.com/blog/post/2021/01/30/validity-of-a-contract-voidable-
contract-and-void-agreement-as-given-under-indian-contract-act-1872/

3. Lexlife India. (2020). Law of contract: Void and voidable contracts. Lexlife.
https://lexlife.in/2020/05/31/law-of-contract-void-and-voidable-contracts/

Kirit P. Mehta School Of Law Page | 13