The topic finds its genesis in the Indian Contract Act, 1872. In easiest language the word ‘agreement’ means arrangements which can bind people as to course of action, the word ‘contract’ means formal and legally binding arrangements, the word ‘void’ means one which is supposedly to have never existed and the word ‘voidable’ means one which can be ended on discretion/will. Section 2(g) says agreements not enforceable by law are void, section 2(i) of the act says agreements enforceable at the option of one party only is a voidable contract, section 2(j) says contracts which subsequently become unenforceable become void. Also we have chapter two of the act which deals with void agreements and
voidable contracts from section 10 to 23, section 24 to 30 specifically deals with void agreements, section 35 and 36 further defines more basis for a void agreement, section 64 defines what are the repurcussions of recission of voidable contract, section 65 defines the obligation of a party who has been advantaged by a voidable/void contract which has subsequently become void, section 66 defines mode of communication and revoking the voidable contract, section 178A defines pledge by person in possession under voidable contract. On detailed understanding of the concept through interpretations of court judgements we come to understand the relation and difference between void agreement, void contract and voidable contract.
IMPORTANCE OF THE CONCEPT
It is one the most important topics as it decides whether:
1. You have any right or not?
2. Till what limit you can ask for any right if available?
3. Whether you can enforce your rights in the court or not?
The concept of void and voidable has a bearing on the justiousness of the issue. The courts while deciding the issues on the topic take into consideration the law of equity.
WHEN AN AGREEMENT IS VOID?
When the basic necessities of a valid contract i.e. valid consideration, age of parties, soundness of person, free consent, absence of consensus ad ideum (understanding a
thing in same terms by both parties), mistake as to matter of fact etc when not fulfilled will be void. There are some kind of agreements that are void for ex. Agreement in restraint of marriage, agreement for future contract is void etc.
VOID AGREEMENT VS VOID CONTRACT
A very important point that must be understood is that there is a difference between void agreements and void contracts. Void agreements are non existent in eyes of law i.e. void ab initio. Void contracts on the other hand become void due subsequent illegality, so impliedly it was legal and enforceable but after a point of time it has become illegal due to newer condition, law etc.
An agreement may be partly unlawful and party enforceable. Similarly a contract/agreement may be partly declared void depending on whether it can be severed from each other.
Some judgements of this act on this topic have become touchstones like:
Mohori Bibee v Damodar Ghosh which says contract with minor is void. Khan Gul v Lakha Singh which says equity must prevail even in cases where the contracts are void because no one should take advantage at others cost as one cannot be allowed to take advantage of his own wrong. In Dhurandhar Prasad Singh v Jai Prakash University it was that there may be voidable transaction which is required to be set aside and the same is avoided from the day it is so set aside and not any day prior to it, also if its a document the effect will be same.
VOIDABLE AGREEMENTS/ CONTRACT- RIGHTS AND LIABILITIES
A voidable agreement/ contract is a tricky issue because it allows only one party to rescind the agreement. It is allowed at the option of one party when it has not been performed and even allowed after partial performance of the contract. All what is required is the prompt action of the party who wants to rescinds it. Even the party is at liberty of not to do any affirm actions and wait for the other party to sue and then rescind the contract.
Section 19 of the act is very cautiously drafted as it says that wherever the party is bound to follow due diligence and beware of patent (information available through basic awareness) defects there he is not allowed to cry foul. Also the section makes it very clear that misrepresentaion though is a ground for voidability but if it does not effects the subject matter of the contract it will not be allowed as a ground for voidability at the option of the other party.
The courts make sure that while ordering such judgements :
1. No party must have taken any advantage of the other.
2. If any advantage has been availed then it must be restored.
3. It also ensures that where part performance has already taken then due must be paid and the other party must be reimbursed for legible acts.
EVERYTHING VOID IS ILLEGAL?
Illegal can be termed as something prohibited by substantive laws of nation like murder, theft, rioting etc. While doing/ going ahead from what a law does not prescribes may not be illegal but breach of mandate of laws when boundary has been prescribed. Sometimes the acts may be void but it may not be illegal necessarily. But illegal contracts are void necessarily not vice versa.
MORALITY AND LAW
The topic from its wording and common usage seems to be totally commercial in nature but it does incorporates societal norms like morality and public policy. For example agreement to concubinage is void as it is against morality and agreement to wager is void because the society finds it against public policy owing to religious beliefs based on epics. This has given way to a parallel black market which is rather more disadvantageous for the society as it has given rise to more number of black practices and leading to a gross violation of many human rights. Though it is agreeable that whatever the people demand cannot be allowed in name of freedom of trade but sometimes regulating the trade is more advantageous and works in greater good of society.
The topic still finds a lot of relevance because the complex nature of business environment is making it tougher to answer in black or white, rather its grey. The era of technology has ushered us into very complex situation for example whether what is exact definition of wager, what is game of skill or game of luck, whether someone trading through digital currency like bitcoins is legal because though it has not been declared as legal money but government is set to levy taxes on such money. The questions like what are the parameters of testing contracts/agreement on basis of morality is harder one and needs a doable solution. Since different high courts are giving diverse judgements there is a need of judgement by apex court.
This article is written by Poonam Maurya, postgraduate from Amity University.