Posted on 8 June, 2023 by Pranjal Srivastava

Suppose Charulata wants to take a property on the Southwest side of New Delhi. She approaches Harpreet as he wants to sell it. They make the deal and enter into a contract for real estate. Before agreeing to the contract terms, she acquires details about the property. Once satisfied, the deal occurs. Through some sources, Chrarulata discovers this property is under illegal proceeds. She approaches Harpreet to sort this out, but he denies the fact.

Frustrated about the same she wants to sue Harpreet and has decided to seek help from the eminent lawyers of Singh’s Law Office. In order to understand what can be done in this regards we need to have an understanding of what is a contract and if Charulata entered in a contract, if the contract is valid, void or voidable?  For the same let’s look into what is a contract is-

INTRODUCTION:

A contract is “An agreement enforceable by Law.” John Salmond explains a contract as “an agreement with obligations between two or more parties.” In simple terms, a contract is a legally binding agreement between at least two parties, out of which one offers a proposal and the other party accepts it.

This proposal is the willingness of a party to do or abstain from doing a specific act in return for something. When two parties enter into a contract, they have the ability to set down their own terms and regulations of the agreement as long as there isn't any unlawful element present in it.

On the basis of validity there are 3 kinds of contracts-

1. Valid contracts
2. Void contracts
3. Voidable contracts

While talking to Adv. V.K. Singh of Singh’s Law Office, he explained about valid and voidable contract under per the Indian Contract Act, 1872 as “Contract is a promise enforceable by law. The promise may be to do something or to refrain from doing something. The making of a contract requires the mutual assent of two or more persons, one of them ordinarily making an offer and another accepting. Contract is an agreement or set of promises giving rise to obligations that can be enforced or recognized by law. And according to section 2(i), of the Act an agreement which is not enforceable by law at the option of one party and not at the option of other then that agreement is voidable. In a voidable contract, one party can be bound by the contract terms while the other party has the right to change their mind”

Difference between Void and Voidable Contract -

Although voidable and void contracts seem to be similar, there is a major difference between them.

The former can still work if both parties agree to the current terms. However, parties cannot enforce the latter from the time of its existence. For a contract to become void, either party must engage in illegal activities. The parties must represent a strong reason to revoke the agreement in the voidable contract. While void contracts are illegal from the beginning, the former can arise anytime between the contract.

When is a contract voidable?

A contract is voidable at the option of either party if a situation arises when any of the following situations are involved:

• If either of party doesn't have free consent while entering into the agreement.

• If either of the parties was mentally incompetent while entering into the agreement.

• If either of the parties misinterpreted the terms of the contract or made a mistake.

Free Consent

Free consent is defined under the Indian Contract Act as the consent which was given by the parties without the existence of “coercion, undue influence, fraud, misrepresentation or mistake.”

Coercion

It is the act of forcefully persuading someone to do something. The ICA defines coercion as “committing, or threatening to commit, any act forbidden by the Penal Code, 1860.” This also includes unlawful threats and/or detainment of a person or property to induce them into entering an agreement. This act of coercion doesn't necessarily have to occur at a place where IPC is applicable. Anytime consent of a party is tampered with, it renders the contract voidable at the option of that party.

In the case of Chikham Amiraju v. Chikham Seshamma (1917)[1], a man threatened his wife and son to transfer certain property to his brother on account of committing suicide. The Madras High Court held this action voidable under section 15 of the ICA because the threat of attempting suicide is forbidden under section 309 of the IPC and it amounts to coercion.

Undue Influence

The rule of Undue Influence was first introduced by Lord Hardwicke, who used the relationship between a parent and their child to explain this. Scruton LJ explained this as “a contractual advantage obtained by a person within certain defined relations with another person.” This is any relationship that involves influence by one party over another.

Section 16 of the ICA describes Undue Influence as a hindrance to free consent in a contract where one party dominates the other's will and takes advantage of their position. This person dominating the agreement can be: Any party holding real or apparent authority over the other. This is the direct or indirect authority of a person over another. For example father-son or guardian-child, manager-employee relationship, etc.

Any party in a fiduciary relationshipwith the other. When a party is in a relationship with another person to act for the benefit of that person on matters within the scope of their relationship, they are said to be in a fiduciary relationship. This includes professional relations such as doctor-patient or lawyer-client.

Any party getting into a contract with another party who is mentally incapable. This can be due to age, mental illness, or any form of mental distress. This incapacity can be permanent or temporary.

In Mannu Singh v. Umadat Pande[2], the court held a guru for applying undue influence on his disciples because took their property as gifts with the promise of a better life in the next life. These gifts were not given with free consent in the fiduciary relationship between the guru and his followers. The burden of proof in the case of Undue Influence is placed on the weaker party. They are required to prove their inability to exercise free choice due to the influence placed by the dominant party. However, there is a shift in the burden of proof with the emergence of an unconscionable transaction such that the stronger party has to prove that they did not use their position to exert any undue influence.

Fraud

This is an act of deception committed by one party to induce another party to enter into a contract. According to section 17 of the ICA, fraud involves the following acts:

1. The suggestion of wrong facts.
2. The active concealment of a fact.

• A party has a duty to speak when the other party specifically asks about any facts related to the contract. It also arises when one party lacks the resources to discover the facts and solely relies on the information conveyed by the other party.

• In certain situations, there might be a change in the facts. Earlier an assertion made by a party might be true which may later on change. In such a case, the party making the original assertion is required to inform the other party of the change in facts.

• Revealing half the facts and concealing the other half also amounts to fraud as the party is required to reveal the whole truth. For example, A shopkeeper is liable for fraud if he reveals only half of the materials used in a product when the other half might've changed the buyer's willingness to buy.

• A promise made by a party to induce the other party into entering into the contract without having the intention of going through with it. For example, A person in a market promises another party to provide them with some extra benefits as compared to other people in the market to catch their attention without actually having any intention of fulfilling it.

• Any act fitted to deceive or any act or omission declared fraudulent by the law. This includes all acts and unfair practices used by a party with the intention of fraudulently inducing or deceiving a person into entering into a contract.[3]

Misrepresentation

Section 18 of the ICA explains misrepresentation. It occurs when a party delivers false facts which induce another party to enter into a contract. Misrepresentation is similar to fraud, except in this case, the party providing the wrong information doesn't have the intention to deceive. If they aren't aware that the material fact they are sharing is wrong or has changed due to some circumstances, it amounts to misrepresentation.

In the case of R. v. Kylsant[4], famously known as the ‘Royal Mail Case’, a company had made an impression that they had paid all of their dividends and were running at a profit while they were actually running at a loss. This was a suppression of facts leading to misrepresentation. Misrepresentation follows two remedies.

• One is the recession, which is the cancellation of the contract, taking both parties back to the situation before the existence of the contract.
• The other remedy is damages which can be given to the injured party as compensation for any loss incurred.

Exceptions: Section 19 of the ICA renders all contracts voidable which are induced without free consent. However, adding to this Adv. Amogh Mund of Singh’s Law Office explained there are some exceptions. Such as, if a party whose consent was induced by fraud or misrepresentation could've discovered the truth with “ordinary diligence”, it doesn't render a contract voidable. The underlying principle of this rule is self-evident. The truth of the representation is irrelevant if it did not persuade the person to whom it was made to act on it by signing a contract. Such a person cannot assert that a statement led him in the first place and that he was subsequently misled by it. Similarly, if the consent of a party is not affected by an act of fraud or misrepresentation, such a contract is not voidable.

Conclusion-

This blog claims that a contract can be either valid or voidable, with a valid contract establishing a legal agreement. A voidable contract may only be declared void at the parties' discretion, but a voidable agreement cannot be changed into a contract owing to its unlawful components. The case and jurisdiction have an impact on the contract's legality.