Voidable Contract Meaning, Explanation with Case Law
Voidable Contract: As per section 2(i), "an agreement which is enforceable by law at the option of one or more the parties thereto, but not at the option of the other or others is Voidable Contract." A contract that is valid but that can be declared invalid at the request of one of the parties because of a defect or illegality (when it not fulfils the condition laid down in section 10 of the Indian Contract Act, 1872) in making it. For example, if one party made a fraudulent misrepresentation on which the other party relied before making the contract, the contract will be enforced against the misrepresenting party but the other party may seek relief by electing to void the contract.
This happens when the essential element of free consent in a contract is missing. When the consent of the party to a contract is not free, i.e. a contract brought about as a result of Coercion, Undue influence, Fraud, or Misrepresentation would be Voidable at the option of the person whose consent was caused by any one of these factors. A Voidable Contract continues to be good and valid till it is avoided by the party entitled to do so. But if the party chooses to affirm it, the contract continues to be valid. However, if there is an agreement by mistake (which is defined in the definition of Free Consent), the agreement will not be defined as a Voidable Contract. Where both the parties to an agreement are under a mistake as to a matter of fact essential to the agreement, the agreement is void. But a mistake of law is never an excuse unless the mistake happens to be of foreign law or private law. Also, a Contract caused by the mistake of one party as to matter of fact is not Voidable Contact.
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Example :
(1) 'A' agrees to sell his house to 'B' for Rs. 10 lac. The consent of A is obtained by the use of force. The Contact is Voidable at the option of 'A', since his consent is obtained by coercion therefore consent is not free. He may avoid the contract or elect to be bound by it.
(2) 'A' fraudulently informs 'B' that 'A's estate is free from encumbrance. 'B' thereupon buys the estate. The estate is subject to a mortgage. 'B' may either avoid the contract or may insist on its carried out and the mortgage debt redeemed.
Further, a contract becomes Voidable in the following cases :
(i) Under section 53 a contract becomes Voidable at the option of one party who is prevented by the other party from performing his promise and he is entitled to compensation for any loss which he may sustain in consequence of the non-performance of the contract¹. In Elias V. Govind (1903), where a principal prevents the agent from completing negotiations stated, that the agency is Voidable and the agent can recover the commission.
Illustration: 'A' and 'B' contact that 'B' shall execute certain work for 'A' for Rs. 1000, 'B' is ready and willing to execute the work accordingly, but 'A' prevents him from doing so. The Contact is Voidable at the option of 'B' and, if he elects to rescind it, he is entitled to recover from 'A' compensation for any loss which he has incurred by its non-performance.
(ii) Where a promise under contract is to be performed at or before a particular time, but the promisor fails to do so within the time fixed, the Contact becomes Voidable at the option of the other party, i.e., the promisee, if the intention of the parties was that time should be of the essence of the Contact.
(iii) Alternatively, a contract can be voidable when any contract is made by the guardian of the minor. The contract is ordinarily is valid contract but the Contract can Voidable if a minor raise objection after attaining the majority age. He get an opportunity to rectify the contract which was made by his guardian behalf of him. Minor can only avoid a contract for a reasonable time after he reaches the age of majority. After a reasonable period of time, the contract is deemed to be ratified and cannot be avoided.
(iv) Other examples would be real estate contracts, lawyer contracts, etc. When a contract is entered into without the free consent of the party, it is considered a voidable contract.
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Case :
- Bawlf Grain Co. v. Ross: An intoxicated wheat producer under the influence of alcohol entered into a contract but did not perform his obligations once he saw the price of wheat increase. It was a landmark judgment which held that any contract wherein a party is inebriated is voidable at the option of the aggrieved party.
- ¹ State of Bihar V. P.K. Jain, AIR 1981.