Download Contracts and Their Validity: Voidable, Void, and Illegal Agreements and more Study notes Business Accounting in PDF only on Docsity! KINDS OF CONTRATS (1) Valid Contract: It is an agreement which fulfils all the essentials of enforceability and can be enforced by either of the parties at the courts of law. (2) Voidable contract: Sec 2(i) lays down that “ An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a Voidable Contract.” This arises where the consent of one of the parties to the contract is not free. Ex., A, at the point of pistol makes B agree to sell his bicycle for Rs.500. Here B’s consent is not free. Circumstances in which a contract is voidable are: (A) At the conception (i) Consent caused by fraud (Sec.14, 17 and 19) (ii) Consent caused by coercion (Sec. 14, 15 and 19) (iii) Consent caused by misrepresentation (Sec. 14, 18 and 19) (iv) Consent caused by undue influence (Sec. 14, 16 and 19A) (v) When one party induces another to enter into an agreement the object of which is unlawful though it is not known to the other party. (B) By Subsequent Default (i) Where offer of performance is not accepted (Sec. 38) (ii) When one party prevents performance of reciprocal promise (Sec. 53) (iii) When a party fails to perform at the time fixed, if time is the essence of the contract (Sec. 55) Consequences of Recession of Voidable Contract When a voidable contract is rescinded ? (A) As regards the party at whose option the contract is voidable, if he has received any benefit from another party to such contract, he must restore such benefit so far as may be, to the person from whom it has been received. The benefit must have been received under the contract and not otherwise. Security for performance is not the benefit received under the contract. (B) As regards the other party, he need not perform his promise. (3) Void Contract: [Sec 2(j)] “A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable” E.g A agrees to sell his car to B for Rs.10,000. All essentials of a contract are fulfilled. If A refuses to sell his car, B can go to the court and the court would enforce A’s promise. But if, before the delivery the car is destroyed by Tsunami, the court cannot enforce anything and hence this contract becomes unenforceable i.e void. Thus, void contract is one which was a valid contract when it was made but becomes void later on. Those agreements which are void ab initio (from the very beginning) are called Void Agreements and those which become void later on are called Void Contracts. Following circumstances will transform a valid contract into a void contract. (A) Contingent contract: A contingent contract to do or not to do something on the happening of an uncertain future event, becomes void, when the event becomes impossible (Sec 32). (B) Repudiation of a voidable contract: When a voidable contract is rescinded by the party at whose option it is voidable, the contract becomes void. (C) Subsequent impossibility (Sec. 56): A contract which becomes impossible to perform, after it is made, becomes void. (D) Subsequent illegality (Sec. 56): A contract becomes void if it becomes illegal after it is made.
