Sunday, November 23, 2014

Indian Contract Act: Valid, Void and Voidable Contract

Valid contract is that which is enforceable at law. It creates legal obligations between the parties. It enables one party to compel another party to do something or not to do something. In case of valid contract all the parties to the contract are legally responsible for the performance of a contract. If one party breaks the contract other has right to be enforced through the court.
Example: Mr. A proposes sell his one acre land to Mr.B for one lac and the parties are capable to do the contract by law. So this contract is valid. If Mr.A fails to deliver the land to Mr. B can sue him in the court for the delivery of land. On other hand if Mr. B fails to make the payment, Mr.A can sue him for the recovery of payment.

"An agreement not enforceable at law is a void contract". Originally it is a valid contract but due to certain reasons it becomes void after its formation. A void contract cannot be enforced by either party. In this case the parties are not legally responsible to fulfill the contract. If any party has received any benefit is bound to return. This contract takes place when consent of one of the parties is not free.

Features of Void Contract:
a. It is not enforceable by law.
b. It creates no legal rights.
c. It creates no obligations on any party.
d. An agreement which is against the public policy or against any law is also void.
e. Under this contract no compensation can be paid to any party.

Cases Where the contracts specifically declared to be void under the Indian Contract Act:
1) Agreement made by incompetent person, For e.g. minor, a person of unsound mind
2) Agreement made under mutual mistake as to matter of fact essential to the agreement. 
3) Agreement made under mistake as to a law not enforce in India. 
4) Agreement, the consideration or object of which is unlawful in part or in full.
5) Agreement made without consideration.
6) Agreement in restraint of marriage – Every agreement in restraint of the marriage of any person other than the minor is void. Every adult person has a right to get married and that to have a right to exercise his choice.
7) Agreement in restraint of trade – Every agreement by which anyone is restraint from exercising a lawful profession, trade or business of any kind is to that extent void.
8) Agreement in restraint of legal proceedings – Every agreement which restricts, whether wholly or partly, the enforcing of rights in a court of law or every agreement limiting the time allowed by Law of Limitation shall be void. Every individual has a right to sue in any court and enforce his rights within the time allowed by the limitation act. The following are the exceptions to this rule:
(a) An agreement to refer any dispute to arbitration is permissible.
(b) An agreement restricting the right of other party to sue in a particular court is permissible.
9) Agreement, the meaning of which is uncertain.
10) Agreements by way of wager.
11) Agreements contingent on an uncertain future event, if the event becomes impossible. 
12) Agreements contingent on an impossible event. 
13) Agreements to do the impossible act. 
14) Agreements to do an act which subsequently becomes impossible.

An agreement, which is enforceable by law at the option of one more of the parties, but not at the option of the other (s), is a voidable contract.
For example: - Mr. A, at knife - point, asks B to sell his scooter for Rs. 50. Mr. B gives consent. The agreement is voidable at the option of B, whose consent is not free.
Features of Voidable Contract
a)      It is a contract, which is enforceable by law at the option of one or more parties thereof, but not at the option of others.
b)      A voidable contract takes its full and proper legal effect unless it is disputed and set aside by the person entitled to do so.
c)       A contract may be voidable since very beginning or may subsequently become voidable.
d)      A voidable contract gives right to the aggrieved party to rescind the contract and claim the damages, etc in certain cases.

e)      A voidable contract does not affect the collateral transactions.