Void, Voidable and Contracts That Become Void: A Simple Guide Under the Indian Contract Act

A note first: the plan asked for "unenforceable" contracts as a third category. The source I could read, an SCC Times article by Sharmin Godrej Irani (30 January 2021), explains void agreements, voidable contracts and contracts that become void, and does not treat "unenforceable" as a separate category. So this post follows the article.

The core definitions

·        Contract (Section 2(h)): an agreement enforceable by law. Under Section 10, agreements are contracts when made with free consent of competent parties, for lawful consideration and lawful object, and not expressly declared void.

·        Void agreement (Section 2(g)): an agreement not enforceable by law. It cannot be enforced at the option of either party.

·        Voidable contract (Section 2(i)): enforceable by law at the option of one or more parties, but not at the option of the others.

·        Contract that becomes void (Section 2(j)): a valid contract that ceases to be enforceable.

Void and void ab initio are not the same

The article says the terms should not be used interchangeably. Void agreements are those expressly declared void in Sections 24 to 30. Agreements void ab initio never created obligations. As a general rule, nothing delivered or paid under a void agreement can be recovered. There are two exceptions:

·        Severance: the court may enforce the lawful part if it can be separated from the unlawful part. Section 27 (restraint of trade) is an example.

·        Collateral transactions: a transaction subsidiary to the main one. If the main transaction is merely void, the collateral one stays enforceable. If the main one is illegal, as in smuggling, the collateral transaction is tainted too.

Voidable contracts

The article splits them into two groups:

·        Voidable from the start: Section 19 (agreements without free consent) and Section 19-A (undue influence).

·        Voidable by later default: Section 39 (refusal to perform wholly), Section 53 (impossibility created by a party's act) and Section 55 (failure to perform at the fixed time, where time is of the essence).

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Contracts that become void

These are valid contracts that later become unenforceable, through supervening impossibility or unlawfulness, a contingent event becoming impossible, or avoidance of a voidable contract. Section 65 applies.

The article cites National Agricultural Coop. Marketing Federation of India v. Alimenta SA, 2020 SCC OnLine SC 381. The Supreme Court held that Section 32 applies when the agreement itself provides for the contingency. Section 56 applies when an act becomes impossible later, the agreement does not provide for it and the promisor had no control over the event.

Mistake and impossibility

·        Section 20: mutual mistake about a fact essential to the agreement makes it void. A mistake about an existing fact makes the contract void ab initio.

·        Section 22: a one-sided mistake of fact does not make the contract voidable.

·        Section 56: agreeing to do an impossible act from the start is void. The article's example is discovering treasure by magic. Commercial hardship is not impossibility.

·        Section 37 exception: a promisor who knew or should have known of an impossibility the promisee did not know about must compensate the promisee.

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Getting back what you paid

Section 65 deals with restitution of benefits under void agreements or contracts that become void. It does not apply where the parties knew at formation that the contract was void. Under the doctrine of in pari delicto, parties equally at fault generally cannot recover money paid for an illegal purpose. Two exceptions: the illegal purpose has not yet been carried out, or the parties are not equally at fault.

Quick comparison

FAQs

What is a void agreement?

An agreement not enforceable by law, under Section 2(g).

What is a voidable contract?

A contract enforceable at the option of one or more parties but not the others, under Section 2(i).

Which Sections declare agreements void?

Sections 24 to 30.

Can money paid under a void agreement be recovered?

Generally no, except for severance and collateral transaction exceptions, and Section 65 restitution in suitable cases.

Which Sections deal with voidable contracts from the start?

Sections 19 and 19-A.

What is the effect of mutual mistake under Section 20?

The agreement is void if both parties are mistaken about a fact essential to it.

Is hardship the same as impossibility under Section 56?

No. Commercial hardship is not impossibility.

Which case did the article cite on Sections 32 and 56?

National Agricultural Coop. Marketing Federation of India v. Alimenta SA, 2020 SCC OnLine SC 381.

Conclusion

Keep three labels clear: void from the start, voidable at the option of a party, and valid but later void. Then attach the sections.

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