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The law relating to contracts in India is governed by The Indian Contract Act, 1872. However, the Contract Act does not purport to codify the entire law relating to contracts, the Act also expressly preserves any usage or custom of trade or any incident to any contract. does not conflict with the provisions of the law. Contract law is limited to the enforcement of a voluntarily created civil obligation. Contract law is not able to take care of the whole range of agreements. Many agreements remain out of scope because they do not meet the treaty requirement. 

  

A contract is an agreement; an agreement is a promise and a promise is an accepted proposal. Each agreement is therefore the result of a proposal by one party and its acceptance by the other party. 

  

An agreement is considered a contract if it is enforceable by law. Provision § 10 of the Act deals with conditions of enforceability. According to this section, an agreement is a contract if it is entered into for a certain consideration between parties who are capable of contracting, with free consent and for a lawful object. 

  

2. Types of contracts based on their validity:-

(i) Valid contract: An agreement which has all the essentials of a contract is called a valid contract. A valid contract can be enforced by law. 

  

(ii). Invalid contract [section 2 letter j)]: An agreement that is not enforceable by law is considered void. A void contract is a contract that ceases to be legally enforceable. A contract, when originally entered into, may be valid and binding on the parties. It may subsequently become invalid. 

  

(iii). Voidable Contract [Section 2(i)]: “An agreement which is enforceable at law at the option of one or more parties but not at the option of another or others is a voidable contract”. However, the contract remains good and enforceable unless terminated by the injured party. 

  

(iv). Illegal contract: A contract is illegal if it is prohibited by law; or is of such a nature that, if permitted, it would contravene the provisions of any law or is fraudulent; or involves or involves injury to the person or property of another, or is considered by a court to be immoral or contrary to public policy. These agreements are punishable by law. These are void-ab-initio. 

  

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

  

(against). Unenforceable Contract: If the contract is good in nature but due to some technical defect it cannot be enforced by law, it is called unenforceable contract. These agreements are not void or voidable. 

  

3. Void agreement :-Void agreement means that there is no agreement at all. The law cannot enforce any legal duty against any party, especially the disappointed party, because it is not entitled to any protective laws in respect of contracts. An agreement to perform a tortious act is an example of a voidable contract or voidable agreement. For example, a contract between drug dealers and buyers is a void contract simply because the terms of the contract are illegal. In such a case, neither party can go to court to enforce the contract.

  

According to section 2 letter (g) of the Indian Contract Act, 1872 “An agreement which is not enforceable by law shall be void” and under section 2(c). j) of the Act “A contract that ceases to be enforceable by law becomes void as soon as it ceases to be enforceable”. Thus void contracts can be of the following two types:- 

  

(i) Void ab initio :- void-ab-initio i.e. unenforceable from the very beginning 

  

(ii) Invalidity due to the impossibility of its performance:- The contract may also be invalid due to the impossibility of its performance. E.g.: If a contract is concluded between two parties A and B, but during the performance of the contract the object of the contract becomes impossible (due to the actions of someone or something other than the contracting parties), then the contract cannot be enforced in court and is therefore void. 

  

(iii) Void agreements under the provisions of the Indian Contract Act, 1872:- 

• Any agreement with a bilateral mistake is void. (§ 20): If both parties to the agreement are mistaken in a matter essential to the agreement, the agreement is void, e.g. A agrees to buy from B a certain horse. It turns out that the horse was dead at the time of the negotiation, although neither party was aware of it. The contract is void.

  

However, a contract is not void merely because it was caused by one of the parties to the contract being in fact mistaken. (section 22) 

  

• Agreements that have illegal consideration and objects are void. (Sections 23 & 24):- A consideration or subject matter of an agreement is unlawful if it is prohibited by law or of such a nature that if permitted would violate the provisions of any law or is fraudulent or involves injury to the person or property of another or that a court considers immoral or contrary to public order.

  

If any part of one consideration for one or more items or any one or any part of any one of several considerations for one item is illegal, the agreement is void. But where the legal part of the agreement is severable from the illegal, the former will be enforced. 

  

• Agreements concluded without consideration are invalid. (§ 25):- An agreement without consideration is invalid if:-

  

(i) It is made out of natural love and affection and is expressed in writing and registered under the Provisional Act. 

  

(ii) It is a promise to compensate a person who has already voluntarily done something for the promisor. 

  

(iii) It is a promise to pay a time-barred debt. 

  

• Agreement to restrain the marriage of any minor is void (Section 26): Every agreement to restrain the marriage of any person other than a minor is void. It is the policy of the Act to discourage agreements which restrict the freedom of marriage. Restraint may be general or partial, that is, a party may be prevented from marrying at all or marrying for a fixed period or marrying a particular person or group of persons, the agreement is void.

  

• The agreement on restraint of trade is void. (Section 27):- Any agreement by which any person is restrained from exercising a lawful profession or trade or business of any kind shall be void to that extent. There are two kinds of exceptions to the rule created by the statutes:-

Ø Sale of Goodwill: – The only exception mentioned in the proviso to section 27 relates to the sale of goodwill. It states that “one who sells the goodwill of a business may agree with the purchaser to refrain from carrying on a similar business within the prescribed local restrictions if the purchaser or any person deriving title to the goodwill from him carries on a similar business therein : Provided that such limits appear to the court to be reasonable having regard to the nature of the business. 

  

Ø Partnership Act:- The Partnership Act contains four provisions which validate agreements in restraint of trade. Section 11 allows the partners to limit their mutual freedom during the life of the firm by agreeing that neither of them shall carry on any business other than the firm. Section 36 allows them to prevent the departing partner from running a similar business within a specified period or within certain local limits. A similar agreement can be concluded by the partners upon or even in anticipation of dissolution. 

  

Exception to the rule as per judicial interpretation:- 

Ø Exclusive Dealing Agreements :- The business practice in fashion is that a manufacturer or producer likes to sell his goods through an exclusive agent or distributor and he in turn agrees not to deal in any other manufacturer’s goods. In the case of Percept D. Mark (India) Pvt. Ltd. v. Zaheer Khan[1], it was held by the Court that a negative covenant in a contract that a party will not sell a similar product of a competitor is not necessarily in restraint of trade but may also promote trade. . 

  

Ø Restrictions on the employee: – The service agreement often contains negative clauses that prevent the employee from working elsewhere for the period covered by the agreement. Trade secrets, customer names, etc. are also the property of the master and servant, he is not to share them with anyone. An agreement of this class does not fall within section 27. 

  

• The agreement on limitation of legal proceedings is invalid. (Section 28) :- An agreement aimed at excluding the jurisdiction of the courts is illegal and void on grounds of public order. § 28 of the Act cancels two types of agreements, namely:

Ø An agreement by which a party is absolutely limited in enforcing its legal rights arising from the contract by ordinary legal proceedings in the ordinary courts. 

  

Ø An agreement that limits the time in which contractual rights can be enforced. 

  

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

Ø This section does not make illegal a contract by which two or more persons undertake that any dispute which may arise between them in relation to any subject or class of subjects shall be submitted to arbitration and that only the amount awarded in such arbitration shall be enforceable in connection with the aforementioned dispute. 

  

Ø This section also does not make illegal any contract in writing by which two or more persons agree to arbitrate any question between them which has already arisen or affect any provision of any applicable law with respect to references to arbitration. 

  

However, the right of appeal is not covered by this section. A party to the dispute may agree not to appeal the decision.[2] 

  

• An agreement whose terms are uncertain is invalid. (§ 29): Agreements whose meaning is uncertain or ascertainable are void. It is a necessary requirement that an agreement to be binding must be sufficiently definite to enable a court to give it practical meaning. An agreement on a future agreement is void because it is uncertain whether the parties will be able to come to an agreement.[3]

Where only a part or reason of the contract is uncertain, but the remainder may be reasonably certain of meaning, the contract will be held to be binding.[4] Similarly, if the agreement is completely silent on price, it will be valid because in that case section 9 of the Sale of Goods Act 1930 will apply and a reasonable price will be payable. 

  

• An agreement in the form of a bet (betting/gambling) is invalid. (§ 30) :- Betting agreements are void; and no action shall lie for the return of anything purported to have been won in any bet, or entrusted to any person to be governed by the result of any game or other uncertain event on which any bet is made. The section does not define “bet”. But a bet can be said to be a promise to give money or monetary value based on the determination or ascertainment of an uncertain event.

  

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

Ø Horse Racing:- This section does not cancel any subscription or contribution or contract of subscription or contribution for any plate, prize or sum of money of the value or amount of Rs.500. Or up to the winner or winners of any horse race. 

  

Ø Crossword puzzles and lotteries :- If skill plays a significant role in the outcome and prizes are awarded according to the priority of the solution, the competition is not a lottery. Otherwise it is . Literary competitions, which involve the application of skills and in which the best and most skilled contestant is sought, are therefore not a bet. 

  

• An agreement conditioned on the occurrence of an impossible event is invalid. (§ 36): A conditional contract is a contract to perform or not to perform something if some event happens or does not happen which is a guarantee of such a contract. Conditional agreements to do or not to do anything upon the occurrence of an impossible event are void, whether or not the impossibility of such an event was known to the parties to the agreement at the time it was made. E.g. A agrees to pay B Rs 1000 if two straight lines close the gap. The contract is void.

  

An agreement to perform impossible acts is void. (§ 56): An agreement to perform an act that is impossible in itself is invalid. A contract to perform an act that becomes impossible or illegal after the conclusion of the contract due to some event that the promisor could not prevent becomes void if this act becomes impossible or illegal. 

  

4. Voidable contract: An agreement which is enforceable by law at the option of one or more parties, but not at the option of the other or others, is a void contract[5]. Voidable contracts are valid unless one of the parties has set them aside. A voidable contract generally occurs when one party is induced to enter into a contract by the other party.

  

(i) Voidable agreements under the provisions of the Indian Contract Act, 1872:- 

  

Ø Voidability of agreements without free consent: – if consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is void at the option of the party whose consent was thus caused.[6] 

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

  

Ø Power to rescind contract induced by undue influence:- If consent to an agreement is caused by undue influence, the agreement is a voidable contract at the option of the party whose consent was so induced[7]. A contract is said to be induced by undue influence when the relationship between the contracting parties is such that one party is in a position to control the will of the other. 

  

The burden of proving that such a contract was not induced by undue influence, then, lies on the person who is in a position to control the will of the other. 

  

Ø Liability of the contracting party preventing the event on which the contract is intended to take effect:- If the contract contains mutual promises and one contracting party prevents the other contracting party from fulfilling his promise, the contract becomes void at the option of the contracting party so prevented.[8] ] The obvious principle is that one cannot take advantage of one’s own mistakes. E.g. A and B undertake that B will do certain work for A for a certain sum of money. B is ready and willing to perform the work accordingly, but A prevents him from doing so, the Contract is void by virtue of B’s choice. 

  

Ø Effect of non-performance within a fixed time for a contract in which time is of the essence:- When the essence of a contract is time and a party fails to perform on time, it is void at the option of the other party[9]. A person who himself delayed the contract cannot avoid the contract because of (his) delay. 

  

(II) Effects of rescission of a contract which is void: When the person at whose option the contract is void rescinds that contract, the other party need not perform any promise contained therein of which he is the promisor. A party withdrawing from a contract which is void is obliged, if he has received any benefit from it from another party to such contract, to return that benefit, if possible, to the person from whom he received it.[10] 

(III) Manner of Communication or Revocation Revocable Withdrawal: – Withdrawal with revocation may be communicated or revoked in the same manner and subject to the same rules as for the communication or revocation of a proposal. 

  

5. Void and Illegal Agreement: The law of contracts distinguishes between an agreement which is merely void and an agreement which is illegal or illegal. An illegal agreement is one that is prohibited by law; but a void agreement need not be prohibited, the law can only say that if it is made, the courts will not enforce it. Thus, every illegal contract is void, but a void contract is not necessarily illegal.

  

The main difference between a void and an illegal contract is that a void contract is not punishable and its collateral transactions are not affected, but on the contrary, an illegal contract is punishable and its collateral transactions are also void. 

  

6. Difference between Void and Void Agreement:-

An invalid contract is considered a legal contract that is invalid, even from the beginning of signing the contract. On the other hand, a void contract is also a legal contract that is declared void by one of the two parties for certain legal reasons. 

  

While a voidable contract becomes void at the time of its formation, a voidable contract becomes void only when it is canceled by one of the two contracting parties. 

  

In the case of a void contract, no performance is possible, while in the case of a revocable contract, it is. While a void contract is not valid at face value, a void contract is valid but can be declared void at any time. 

  

While a void contract does not exist and cannot be supported by any law, a void contract is an existing contract and is binding on at least one party involved in the contract. 

  

7. Conclusion: To ensure the performance and enforceability of the contract, the contract should be a valid contract. Because void contracts cannot be enforced.

 

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ARTICLE WRITTEN BY HARSHA L NALWAR