Voidability of Agreements Without Free Consent

Note what is not in the list. The section names coercion, fraud and misrepresentation. Undue influence was removed from it and given its own provision, section 19A, so that the court could set the contract aside on terms. See [Setting Aside a Contract Induced by Undue Influence]. Mistake is not in the list either, because it is dealt with by sections 20 to 22 and generally makes the agreement void rather than voidable.

Broken down

The main rule

Voidable is defined in section 2(i): 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. So the contract binds the wrongdoer fully and binds the injured party only so long as he chooses.

The second paragraph: affirm and be compensated

Available for fraud and misrepresentation only, not for coercion. The injured party may insist that the contract be performed and that he be put in the position he would have been in if the representations made had been true.

This is a valuable and often overlooked remedy. It is measured on the truth of the representation, so it puts the injured party where the promise would have placed him. A buyer told a plot measured a thousand square metres, which measures eight hundred, may take the plot and claim the shortfall.

The Exception: means of discovering the truth

Denies avoidance where consent was caused by misrepresentation, or by silence fraudulent within section 17, and the party had the means of discovering the truth with ordinary diligence. It does not protect active fraud. Illustration (b), the buyer who examined the indigo accounts, is the model, and it is set out in [Misrepresentation].

The Explanation: it must have caused the consent

A fraud or misrepresentation that did not cause the consent does not make the contract voidable. This is section 14's but for test restated for this section, and it is why a misstatement the other side never relied on is legally irrelevant.

Rescission: how it is done and when it is lost

Rescission means unmaking the contract and putting the parties back where they were. The word is spelt with two s's; MU's syllabus in Module IV spells the topic "Recession", but the Act says rescission.

How. By communicating the decision to the other party. Section 66 provides that the rescission of a voidable contract may be communicated or revoked in the same manner, and subject to the same rules, as apply to the communication or revocation of a proposal. So the rules in section 4 apply. See [Communicating Rescission, and the Promisee's Neglect].

Restoring benefits, section 64. When a person at whose option a contract is voidable rescinds it, the other party need not perform, and the party rescinding must restore any benefit received to the extent he has received it.

When the right is lost. Four ways, and they are commonly examined as a list.

1. Affirmation. Where the injured party, knowing of the coercion, fraud or misrepresentation, expressly or by conduct treats the contract as continuing.
2. Lapse of time. Unreasonable delay after discovery, and in any event the periods fixed by the Limitation Act 1963.
3. Third party rights. Where a third party has acquired rights for value and without notice before rescission.
4. Impossibility of restitution. Where the subject matter has been consumed or so altered that the parties cannot be restored substantially to their former position.

Void and voidable, side by side

A worked example

Imtiaz buys a second hand car from Dinesh for six lakh rupees. Dinesh has told him, knowing it to be false, that the car has never been in an accident. Two weeks later Imtiaz discovers the truth.

• Is the contract void? No. Consent existed under section 13; it was not free. Section 19 makes the contract voidable at Imtiaz's option.
• Option one: rescind. He communicates rescission to Dinesh under section 66, returns the car, and recovers the six lakh rupees; section 64 requires him to restore the benefit he received.
• Option two: affirm and claim. Under the second paragraph of section 19 he may keep the car and insist on being put in the position he would have been in had the representation been true, which is the difference in value between the car as represented and the car as it is.
• Option three: damages in deceit, because this is fraud and not mere misrepresentation. See [Fraud].
• Now suppose Imtiaz, knowing the truth, gets the car serviced, insures it for a year and drives it for six months. He has affirmed, and the right to rescind is gone. His claim under the second paragraph of section 19 may survive.
• Now suppose that before Imtiaz rescinds, he sells the car to Kavita, who knows nothing and pays a fair price. Kavita's title is good, because the contract was valid when she bought. Had the agreement been void, she would have taken nothing.
• Now suppose Dinesh had said the car had never been in an accident, honestly believing it, and the accident report had been in the service file Imtiaz was handed and never opened. This is misrepresentation, and the Exception applies: Imtiaz had the means of discovering the truth with ordinary diligence, so the contract is not voidable.

What it does NOT mean

"Voidable means the contract is invalid." It is fully valid, and it binds both parties, until the injured party avoids it.

"Either party may avoid a voidable contract." Only the party whose consent was caused by the vitiating factor.

"Section 19 covers undue influence." It does not; section 19A does, and it adds a power to set the contract aside on terms.

"Rescission is automatic once fraud is proved." It must be exercised and communicated, under section 66, and it can be lost.

"The rescinding party keeps what he received." Section 64 requires him to restore any benefit received to the extent he received it.

Quick revision

• s.19: consent caused by coercion, fraud or misrepresentation makes the agreement a contract voidable at the option of the party whose consent was so caused. Undue influence is in s.19A.
• Second paragraph (fraud and misrepresentation only): the injured party may affirm and insist on performance, and on being put in the position as if the representations had been true.
• Exception: no avoidance where consent was caused by misrepresentation or fraudulent silence and the party had the means of discovering the truth with ordinary diligence. Not available against active fraud.
• Explanation: a fraud or misrepresentation that did not cause the consent does not make the contract voidable.
• Rescission: communicated under s.66 as a proposal is; benefits restored under s.64.
• Lost by: affirmation, delay, third party rights for value without notice, and impossibility of restitution.
• Void, s.2(g), nothing ever passed. Voidable, s.2(i), everything passed until avoidance.

Test yourself

1. State section 19 and say which vitiating factors it covers. When consent to an agreement is caused by coercion, fraud or misrepresentation, the agreement is a contract voidable at the option of the party whose consent was so caused. It covers those three. Undue influence is dealt with separately by section 19A, and mistake by sections 20 to 22.

2. What alternative to rescission does section 19 give, and to whom? The second paragraph allows a party whose consent was caused by fraud or misrepresentation, if he thinks fit, to insist that the contract be performed and that he be put in the position in which he would have been if the representations made had been true. It is not available where the vitiating factor was coercion.

3. Explain the Exception to section 19 and its limits. Where consent was caused by misrepresentation, or by silence that is fraudulent within section 17, the contract is not voidable if the party could have discovered the truth with ordinary diligence. It does not apply to active fraud, so a party who told a deliberate lie cannot argue that the victim should have checked.

4. How is the right to rescind lost? By affirmation with knowledge of the vitiating factor, expressly or by conduct; by unreasonable delay and by the periods in the Limitation Act 1963; by the acquisition of rights by a third party for value and without notice before rescission; and where restitution has become impossible because the subject matter has been consumed or substantially altered.

5. Why does the void or voidable distinction matter to an innocent buyer? Because a voidable contract passes title until it is avoided, so an innocent purchaser for value without notice who buys before avoidance keeps the goods and the original owner is left to a personal remedy against the wrongdoer. Under a void agreement no title passed at any point, so the innocent purchaser takes nothing and must give the goods up.