A Contract is a legally binding agreement between two or more persons by which rights are acquired by one or more to act or for bear on the part of others.
Discus
Nowadays we are experiencing contracts in almost every aspect of our life.In some cases, we do not even realize that we are making contracts. These contracts play a vital role in case of trade, commerce and business. The law of contracts is also different from other branches of law in a very important respect.
The law of contracts was adopted in Bangladesh also. It contains the common rules relating to contracts and differentiates them. The Act has 238 sections under its 11 chapters. It begins with the preliminary aspects, including a short preamble and title, extent and date of commencement and interpretation of words and expressions used in the act. The way of communication, acceptance, revocation, and conversion of proposal into promise is described in chapter one. Chapter two defines and interprets different types of contracts, voidable contracts, and void agreements. This chapter also defines essential terms such as consent, free consent, undue influence, fraud, and misrepresentation, and gives their legal interpretation. Competency of persons to be a party to contract and the conditions for void contracts are elaborated in this chapter.
Most people in our society are involved in contractual agreements of some kind. In most, if not all, aspects of law contracts can be found. Contracts are involved in family law, corporate law, employment law, litigation and real estate.In this study I am going to explain only the major aspects of void and voidable contracts along with the effects of become beneficial from void contracts.
Contracts (Definition and Analysis):
A contract is formed in any transaction/ agreement in which one or both parties make a legally enforceable promise. A promise is a commitment or undertaking that a given event will or will not occur in the future and may be expressed or implied from conduct or language and conduct. A promise is legally enforceable where it:
Was made as part of a bargain for valid consideration; reasonably induced the promise to rely on the promise to his detriment; oris deemed enforceable by a statute despite the lack of consideration.
Law of contract can be classified, as is habitual in civil law systems, as part of a general law of obligations. As a means of economic ordering, contract relies on the notion of consensual exchange and has been extensively discussed in broader economic, sociological, and anthropological terms In American English, the term extends beyond the legal meaning to encompass a broader category of agreements
Classification of contracts
Contracts may be classified according to their validity as (i) valid, (ii) voidable, (iii) void contracts or agreements, (iv) illegal, or (v) unenforceable. A contract to constitute a valid contract must have all the essential elements. If one or more of these elements is/are missing, the contract is voidable, void, illegalor unenforceable.
Voidable Contract:
If a contract can be rejected by one of the parties on legal grounds, it is called a <href=”#voidable”>voidable contract. A voidable contract is valid and binding unless the entitled party* (the party wha has legal grounds to reject the contract) voids it. A defect exists. The defect may be cured by ratification of the entitled party.
Voidable contract is one which may be repudiated at the will of one of the parties, but until it is so repudiated it remains valid and binding. It is affected by a flaw (e.g., simple misrepresentation, fraud, coercion, undue influence), and the presence of anyone of these defects enables the party aggrieved to take steps to repudiate the contract.
It shows that the consent of the party who has the discretion to repudiate it was not free.
Example: A, a man enfeebled by disease or age, is induced by B’s influence over him as his medicalattendant to agree to pay B an unreasonable sum for his professional services. B employs undue influence. A’s consent is not free; he can take steps to set the contract aside.
Void Contract:
An agreement which is not enforceable by either of the parties to it is void [Section 2(i)].
Such an agreement is without any legal effect ab initio (from the very beginning). Under the law, an agreement with a minor is void.
Examples: (1) A and B contract to marry each other. Before the lime fixed for the marriage, Agoes mad. The contract becomes void.
(2) A contracts to take indigo for B to a foreign port. A’s government afterwards declares war against the country in which the port is situated. The contract becomes void when war is declared.
In the above two examples, the contracts were valid at the time of formation. They became void afterwards. In example (1) the contract became void by subsequent impossibility.
In example (2) the contract became void by subsequent illegality.
It is misnomer to use ‘a void contract’ as originally entered into. In fact, in that case there is no contract at all. It may be called a void agreement. However, a contract originally valid may become void later.
Black’s Law Dictionary defines void as:
Void. Null; ineffectual; nugatory; having no legal force or binding effect; unable, in law, to support the purpose for which it was intended.
Void ab initio. A contract is null from the beginning if it seriously offends law or public policy in contrast to a contract which is merely voidable at the election of one of the parties to the contract.
Distinction between Void and Voidable Contract:
There is an important distinction between “void “and “voidable” contracts. Confusion sometimes arises from the failure to understand the difference. A contract is void when the law declares it to be so absolutely – there is no contract whatever and no change in the legal position of the <href=”#parties”>parties; it cannot be ratified. A voidable contract, on the other hand, binds one party but not the other; it is valid until it is avoided by the party entitled to avoid it (refuse to do his part). Until thus disaffirmed it is binding. It may be ratified.
Contract that is void means technically that there never was a contract. There are few times when this remedy is available including if there was a mistake, the contract was entered into under duress, or that the contract was never properly formed.
A contract that is ‘voidable’ is when there has been a misrepresentation or a mistake that allows the innocent party to decide whether the contract will be affirmed, or ‘rescinded’.Rescinding a contract has the same effect as if it were void (puts the parties back to where they were as if the contract had never been formed), but the key differences are that it is a choice whether to rescind or affirm and then sue for damages for expectation. Also, rescission is not available in some particular situations: where there are third parties involved, when the contract has already been affirmed, when it is impossible to put the parties back to where they were before the contract was formed, or where the rescission was not done in a reasonable time.
An example of a transaction which is an unenforceable contract is a contract for prostitution under English law. Prostitution is not actually a crime under English law, although both soliciting a prostitute and living off the earnings of a prostitute are criminal offences but so long as the contract is fully performed, it remains valid. However, if either refuses to complete the bargain then the court will not assist the disappointed party.
Some important factors of distinctions
(1) Legality:A contract also becomes void by reason of subsequent illegality.A voidable contract, on the other hand, can be enforced by the party at whose option it is voidable.
(2) Enforceability: An unenforceable contract or transaction is one that is valid, but which the court will not enforce. Unenforceable is usually used in contradistinction to void (or void ab initio) and voidable. If the parties perform the agreement, it will be valid, but the court will not compel them if they do not. A void agreement is unenforceable from the very beginning, whereas voidable contract becomes unenforceable only when the party at whose option the contract is voidable’ rescinds it.
Examples: A, a doctor, by exercising undue influence over his patient B induces him to sell his car worth Tk 1, 50,000 for Tk 1, 00, 00. It is a voidable contract at the option of B. If B rescinds the contract, it becomes unenforceable; but if he does not, then the contract is enforceable.
(3) Compensation:Under avoidable contract, any person who has received any benefit must compensate or restore it to the other party. The question of compensation in the event of non-performance of a void agreement does not arise, as it is unenforceable from the very beginning.
(4) Effect on collateral transaction:A voidable contract does not affect collateral transaction. But if the agreement is void on account of the object or consideration being illegal or unlawful, the collateral agreement will also become void.
The legal effects of a contract being deemed voidable as opposed to void are
• Where a contract is merely voidable, the innocent party may enforce the contract, but the contract cannot be enforced against him. If a contract is void, neither party can enforce the contract.
• Rights in a voidable contract are transferable; rights cannot be transferred in a void contract.
• If a party improperly transfers property to a bona fide purchaser for value, the injured party may recover the property if the contract governing the transaction is void but not if it was voidable.
• Voidable contracts may be ratified by the party with the power to avoid the contract once the reason for such avoidance – such as minor age, mental impairment, duress, undue influence or mistake – no longer exists. Void contracts cannot be ratified.
Capacity to Contract
The ability to know and understand the terms of contract is known as <href=”#capacity”>capacity. For a contract to be valid, all parties must have capacity. Corporations and most adults have capacity. Minors, mentally incompetent persons and those who are intoxicated do not have capacity.
Most states consider persons under the age of 18 to be minors. Minors lack capacity to enter into a contract. If they do enter into a contract, the contract is generally considered voidable. They have the right to cancel the contract at any time before reaching the age of 18. If, however, a minor cancels the contract, the benefits that he or she received must be returned.
If a person is so mentally incompetent that he or she fails to understand that a contract is being made and further does not understand the terms of the contract, that person is said to lack capacity to enter into a contract. If such a person enters into a contract, the contract may be deemed voidable or possibly void.
In the same way, if persons are so intoxicate that they cannot understand that they’re entering into a contract, and are so impaired that they fail to understand the terms, they too lack capacity. These contracts can also be considered voidable or void.
Effects of getting Benefit from void contract:
Where a person lawfully does anything for another person, or delivers anything to him, not intending to do so gratuitously and such other person enjoys the benefit thereof, the latter is bound to make compensation to the former conditions:
• The thing must have been done lawfully in good faith
• The thing must have been done by a person not intending to act gratuitously
• The person for whom the act is done must have enjoyed the benefit of it
But sometimes people are benefitted from the void contracts also. The effects of those benefits from void contract are discussed here.
• Minor can be a promise /beneficiary.
• Minor cannot ratify even after attaining majority.
If someone contract with a minor then the contract is void-ab-initio, i.e., neither the other party nor the minor can enforce.
The person is bound to restore the advantage received/make compensation for it, to the person from whom he received it when
An agreement is discovered to be void. But, if the agreement is known to be void when entered into, no such obligation arises.
Example: if a pays Tk10, 000 to B to murder C, the money cannot be recovered.
Nothing can be recovered in the case of expressly declared void agreements except for:
In the case of an agreement caused by bilateral mistake of essential fact restoration is allowed since agreement is not known to be void but is discovered to be void
In the case of an agreement with a minor who commits fraud by misrepresenting his age restoration is allowed.
Another two example to understand the effects: A sells the goodwill of his business to B & promises not to carry on similar business anywhere in the world. Restraint is unreasonable and so the agreement is void.
An example of a transaction which is an unenforceable contract is a contract for prostitution under English law. Prostitution is not actually a crime under English law, although both soliciting a prostitute and living off the earnings of a prostitute are criminal offences but so long as the contract is fully performed, it remains valid. However, if either refuses to complete the bargain then the court will not assist the disappointed party.
Consequences of rescission of Voidable Contract:
When a person at whose option a contract is voidable rescinds it, the other party need not perform any promise therein contained in which he is a promise.
If the party rescinding avoidable contract has received any benefit from another party to such contract, he must restore such benefit to the person from whom it was received.
Conclusion:
Lastly I can say that contract is a legally binding agreement between two or more persons by which rights are acquired by one or more to act or for bear on the part of others. A void contract is not enforceable at law. While voidable a contract is enforceable at the option of one party. Moreover, there are several differences between void and voidable contract. But if a person gets benefit from any void contract there are some after effects for this. Those effects depend on some situational factors.