According to the Indian Contract Act, 1872, Voidable contract is an agreement that is legally binding but can be cancelled by one of the parties involved. This usually happens when the consent of one party to the contract was not given freely. Acts like coercion fraud, misrepresentation, or undue influence undermine free consent and give the aggrieved party the right to rescind the contract.
Even though the contracts are voidable it remains valid and enforceable until the party who is affected by the law in the contract chooses to rescind or cancel it.
If the party does not act or decides to go ahead with the contract, despite the issue, it may still be a valid contract.
However, it’s important to act within a reasonable time, otherwise the right to rescind or to cancel the contract could be lost.
It’s crucial to understand the difference between a voidable contract and a void contract. A void contract is completely invalid from the beginning that is void ab inito which means that it has no legal effect, while a voidable contract is initially valid, but can be annulled at the option of the aggrieved party.
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Definition of Voidable Contract
Section 2(i) of Indian Contract Act, 1872 defines voidable contract as an agreement which is enforceable by law and the option of one or more of the parties but not at the option of the other or others. It means that a voidable contract is a valid agreement that may become void at the option of one party. Such contracts remain legally binding and enforceable until the aggrieved party decides to rescind it.
Characteristics of Voidable Contract
A voidable contract is an agreement that is legally valid and enforceable but one that can be annulled by one of the parties under certain circumstances given below:
Enforceability and the option of one party:
A voidable contract is binding on both parties unless and until it is rescinded by the aggrieved party. The right to rescind the contract lies exclusively with the party whose consent was compromised.
Presence of valid consent:
At the outset, the agreement satisfies the criteria of a valid contract. However, the consent of one party may have been obtained through improper means such as coercion, undue influence, fraud or misrepresentation.
Legal remedy:
The aggrieved party can either affirm the contract and seek performance or choose to rescind it and claim damages, if the damages are applicable.
Grounds for voidable contracts
A contract may become voidable at the option of the party which sufferers from the acts given below as per Indian Contract Act, 1872:
1. Coercion:
Section 15 of Indian Contract Act, 1872 defines Coercion as the use of physical or psychological pressure to compel a person to enter into a contract. As per section 15 coercion includes committing or threatening to commit any forbidden act provided by Indian Penal Code, 1860. If consent is obtained through coercion, the contract becomes void and the option of the coerced party.
Illustration: If A forces B to sell his property by threatening to harm B’s family, the contract is voidable at B’s option.
2. Undue influence
Section 16 of Indian Contract Act, 1872 says that undue influence arises when one party unfairly influences the other party because of having a position of dominance or trust to obtain an unfair advantage or to make a party enter into a contract. Such influence vitiates free consent under Section 14 and renders the contract voidable at the option of the aggrieved party.
Illustration: a spiritual guru persuades his devotee to transfer property in the name of that guru. Here, the guru is exploiting the devotee’s trust to make him enter into a contract and hence the contract becomes voidable at the option of devotee.
3. Fraud
Section 17 of Indian Contract Act, 1872 says that fraud entails deceptive intention to cause misrepresentation or concealment of material facts by one party to deceive the other. When consent is obtained through fraud, the contract becomes voidable at the option of the aggrieved party.
Illustration: A sells his car to B, concealing the fact that it has a defective engine. In this case B can rescind the contract upon discovering the fraud
4. Misrepresentation
Section 18 of Indian Contract Act,1872 says that misrepresentation refers to the unintentional or innocent misstatement of facts that includes another party to enter into a contract. While there is no fraudulent intent, the misrepresentation still affects the validity of the consent and makes the contract voidable.
5. Mistake
Section 20, 21 and 22 talks about 'mistake’, where it says that voidable contracts may also arise in cases of unilateral or bilateral mistake regarding essential facts. However, such mistakes must significantly impact the consent of the aggrieved party.
Illustration: if A and B enters into a contract under the mistaken belief that a particular property belongs to A, the contract is voidable upon discovery of the true facts.
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Recession of Voidable Contracts
The aggrieved party can rescind voidable contract by expressing an intention to do so within a reasonable time. Key points regarding recession of voidable contract includes:
Timing: the recession must occur before the contract has been affirmed or substantially performed
Restoration of benefits: if the contract is rescinded, the aggrieved party must restore any benefits received under the contract to prevent unjust enrichment.
Court intervention: in certain cases, the aggrieved party may seek a court assistance to formally rescind the contract.
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Effects of Rescinding
The contract doesn’t end as soon as it is rescinded by the court, it leaves effect in terms of formalities and obligations on both the parties involved in a contract, these effects are:
Termination of obligations: As soon as the contract is rescinded, the parties are released from their obligations under the contract they were in.
Restitution: the parties must return any benefits or consideration exchanged under the contract.
Claim for damages: if the aggrieved party has suffered a loss due to fraud, misrepresentation, or other grounds, they may claim compensation in addition to recession
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Relevant case laws
Voidable contact has always been an ongoing topic in Indian Contract Law and to explain which contracts are voidable. There are few such relevant case laws given below:
Ranganayakamma v. Alwar Setti (1889): In this case, a widow was compelled to adopt a boy under Duress. The court held that adoption deed was what as her consent was obtained through coercion.
Krishna Bahadur v Purna Theatre (2004): The Supreme Court emphasised that voidable contract remains valid until rescinded, and that the aggrieved party must act promptly to exercise their option to declare a contract voidable.
Derry v Peek (1889): This landmark case established the distinction between fraud and innocent misrepresentation, highlighting the importance of intent in determining the grounds for violability.
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Voidable contracts versus Void contracts
It is essential to distinguish between voidable and void contracts. While voidable contract contracts are unforgettable until it is being resented, void contracts are invalid from the start and cannot be enforced by either party. Void contracts typically arise from possibility of performance unlike voidable contracts, which can be held invalid at the option of the other party.
Summary
A Contract under the Indian contract act, 1872 offers a mechanism to protect parties whose consent has been compromised. By providing the aggrieved party with the option to affirm or rescind the contract, the law upholds the principles of fairness and free consent. However, common timely actions and adherence to legal procedures are crucial to effectively exercise this option. Understanding the elements of voidable contracts not only ensures better compliance, but also empowers individuals to safeguard their contractual rights in the face of acts like coercion , undue influence, fraud or misrepresentation.
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Voidable Contracts in Indian Contract Act, 1872: FAQs
Q1. What is a voidable contract?
It is an agreement enforceable by law at the option of one party but not the other.
Q2. When does a contract become voidable?
When consent is obtained through coercion, undue influence, fraud, or misrepresentation.
Q3. Is a voidable contract enforceable?
Yes, until the aggrieved party rescinds it.
Q4. What remedies are available in a voidable contract?
The aggrieved party can affirm or rescind the contract and claim damages.
Q5. Who can rescind a voidable contract?
Only the party whose consent was vitiated.
