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Unit 1: Law of Contract

2. Enforceability. A void agreement is unenforceable from the very beginning, whereas a Notes
voidable contract become unenforceable only when the party at whose option the contract
is voidable’ rescinds it.

Example: (i) A pays B ` 10,000 in consideration of B’s promise to sell him some goods.
The goods had been destroyed at the time of promise. The agreement is void and
thus unenforceable.
(ii) A, a doctor, by exercising undue influence over his patient B induces him to sell

his car worth ` 1,50,000 for ` 1,00,000. 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 a voidable contract, any person who has received any benefi t 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.
Obligation of the Parties under a Void Contract and Voidable Contract. In the case of a void
contract, since the transaction is either unenforceable from the beginning or so becomes on the
transaction becoming impossible or illegal of execution, the parties thereto are exonerated of
their obligations. Thus, none of the parties can seek performance from the other. In the case of
a voidable contract, the party aggrieved may or may not opt to repudiate the transaction. Thus,
where it prefers, in spite of his consent being not free, to abide by the transaction the other party
shall also be subject to the obligations contemplated under the contract. The position shall be as
if the contract was a valid contract. But where it chooses to opt out of the transaction, then all the
parties shall be excused from the obligations under the contract.
Are all Unenforceable Contracts Void? Section 2(j) does not declare every unenforceable contract
void. A contract may be unenforceable either by substantive law or by procedural law or
regulation. It is only that contract which in unenforceable by substantive law which becomes
void. In other words, ‘unenforceable by law’ means unenforceable by substantive law.

Example: (i) There is a contract with an alien enemy. It is illegal from its inception and
therefore would be void under S.2(g).

(ii) There is a contract with an alien friend but later on he becomes an alien enemy. Such a contract
would be void under S.2(j).
A contract may be unenforceable but not be void. Thus, a mere failure to sue within the time
specified by the Limitation Act or an inability to sue by reason of the provisions of one of the

orders under the Civil Procedure Code would not make the contract void.
Distinction between Void Agreement and Void Contract. A void agreement is unenforceable
from the very beginning; whereas a void contract is valid at the time of its formation but becomes
void later on.

1.6 Agreements against Public Policy (Ss.26-28)

An agreement which conflicts with morals of the time and contravenes any established interest
of society is void as being against public policy.

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