Agreement, Contract, and the Difference that Decides Cases

Void agreement against voidable contract

This is the distinction that carries the most marks in the whole introductory topic.

Two points repay attention.

A voidable contract is a real contract. Until the aggrieved party avoids it, it binds both sides. If a buyer whose consent was obtained by fraud chooses to affirm the contract and sue for damages, he may. The option is his alone: the party who committed the fraud cannot escape.

The moment of avoidance matters. Because a voidable contract is valid until avoided, rights can validly pass under it in the meantime. That is why the table's third party row reads as it does, and it is the point on which a problem question about a sale of goods obtained by fraud usually turns.

The other three words

Illegal agreement

An illegal agreement is void, but voidness is not all that happens to it. Section 23 declares unlawful the consideration or object which is forbidden by law, defeats the provisions of any law, is fraudulent, involves injury to person or property, or is immoral or opposed to public policy.

The extra consequence is contamination. A transaction collateral to an illegal agreement is itself tainted, while a transaction collateral to a merely void agreement is not. This is precisely the distinction the courts have drawn between a wagering agreement, which section 30 makes void but which is not forbidden, and an agreement that is actually unlawful under section 23. It is worked in [Wagering Agreements] and in [Unlawful Consideration and Object].

Unenforceable contract

A contract that is perfectly valid but cannot be enforced by a court because of a procedural or technical defect. The classic cases are a claim on which the limitation period has expired, and a document that the law required to be stamped or registered and which was not. The right survives; the remedy is barred. If the defect is cured, for example by paying the stamp duty and penalty, the contract can be enforced.

That is also why section 25(3) exists: a written and signed promise to pay a time barred debt is binding, even though the original debt could no longer be sued upon. See [Agreements Without Consideration Are Void, Unless].

Contract which becomes void

Section 2(j) covers a contract that was enforceable and later ceased to be. The main route is section 56, supervening impossibility, and the consequences are governed by section 65, which requires a person who has received any advantage under a contract that becomes void to restore it or to make compensation. See [Impossibility of Performance, and Frustration].

A worked example

Sameer, aged 17, agrees to sell his motorcycle to Farida for forty thousand rupees, and Farida pays ten thousand in advance.

• Sameer is a minor, so he is not competent to contract under section 11. The agreement is void, not voidable. Farida has no option to enforce it, because voidness is not something either party chooses.
• Farida's ten thousand rupees are dealt with under section 65 and the law on a minor's position, taken up in [The Minor's Position: Necessaries, Restitution and Ratification].

Change the facts. Sameer is 25, and he agrees to sell the motorcycle because Farida threatens to publish a photograph unless he does.

• Sameer's consent was caused by coercion under section 15, so under section 19 the contract is voidable at Sameer's option.
• If Sameer avoids it, section 64 requires him to restore the ten thousand rupees, because a party rescinding a voidable contract must restore any benefit he received.
• If Sameer would rather keep the bargain and sue for something else, he may: the contract is valid until he avoids it.

Change them again. Sameer, aged 25, agrees to sell the motorcycle to Farida so that she can use it to transport stolen goods, to Sameer's knowledge.

• The object is unlawful under section 23, so the agreement is void and illegal. Neither can sue, and a separate loan Farida took from a third person who knew the purpose may itself be tainted.

What it does NOT mean

"Void and voidable are two words for the same thing." They are opposites in the only respect that matters: a void agreement never binds anybody, a voidable contract binds everybody until one particular person says otherwise.

"An unenforceable contract is void." It is not. It is valid, and it may become enforceable if the technical defect is cured. Calling it void gives away the possibility of curing it.

"All void agreements are illegal." Only the reverse is true. A wagering agreement is void under section 30 and is not forbidden by law, which is why an agreement collateral to it can stand.

Quick revision

• Agreement, s.2(e); contract, s.2(h); contract = agreement + enforceability, and section 10 lists what enforceability requires.
• Void agreement, s.2(g): enforceable by nobody, never was a contract, restoration under s.65.
• Voidable contract, s.2(i): valid until the aggrieved party avoids it, restoration under s.64, third parties in good faith protected before avoidance.
• Voidable causes are defects in consent, ss.15 to 18 through s.19. Void causes are missing essentials, ss.11, 23, 25, 29, 30.
• Illegal agreement: void plus taint on collateral transactions.
• Unenforceable contract: valid but barred by a technical defect such as limitation, stamping or registration.
• Contract becomes void, s.2(j), chiefly through s.56, with s.65 governing restoration.

Test yourself

1. Every agreement is not a contract, but every contract is an agreement. Explain. An agreement under section 2(e) is any set of promises forming the consideration for each other. It becomes a contract under section 2(h) only if it is enforceable, which section 10 makes depend on free consent, competency, lawful consideration and object, and the absence of an express declaration of voidness. So contracts are the enforceable subset of agreements.

2. A obtains B's consent by fraud. Can B sue on the contract? Yes. The contract is voidable at B's option under section 19. B may affirm it and sue for breach, or avoid it, in which case section 64 requires him to restore any benefit received.

3. Distinguish a void agreement from an illegal agreement in one respect that matters. Both are unenforceable, but transactions collateral to an illegal agreement are tainted, while transactions collateral to a merely void agreement may be enforced.

4. What is an unenforceable contract? Give an example. A valid contract that a court cannot enforce because of a technical defect, such as a claim barred by limitation or a document that required stamping and was not stamped. Curing the defect can restore enforceability.

5. Which section covers a contract that becomes void, and what follows? Section 2(j). The main route is section 56, and section 65 then requires any person who received an advantage under the contract to restore it or make compensation.