Description
A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract is bound. The unbound party may repudiate the contract, at which time the contract is void.
Voidable Contracts
1
Voidable Contracts
2
Case: Mischief by One Party
Sabrawal’s car had done 1, 50, 000 Kms. Sabrawal repainted the car and tempered the meter and represented to Rajesh that the car had done only 20, 000 Kms. Rajesh accepted the offer to buy the new looking car for Rs. Two lakhs. He paid an advance of Rs. 40, 000. Situation 1:
Later, Rajesh learnt from reliable sources that the car was actually old. Rajesh wants his money back. Sabralwal insists that he should pay the balance and take the car. 3
Cond…
Situation 2:
Later, Rajesh learnt from reliable sources that the car was actually old. However, in this while, the government imposed taxes which has made cars a lot more expensive. Now, Sabrawal wants to return back Rs. 40, 000 to Rajesh and not give him the car. While Rajesh is insistent on paying the balance amount and taking the car away.
4
Indian Contract Act: Voidability
19. Voidability of agreements without free consent.- 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. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
5
Indian Contract Act: Coercion
15. Coercion defined.- "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
6
S.S. Sakhar Ltd.v. C.I.T. Kolhapur
The Sugar Co-operative Societies of Maharashtra are governed by the provisions of Maharashtra Cooperative Societies Act, 1960. Its members are predominantly sugarcane farmers. Under the law, the Co-operatives compulsorily took deposits from its farmer members. The question arose if this was coercion and a ground for making the contract voidable.
7
Judgement
… the bye-laws of the Co-operative Society constitute a contract between the Society represented by its managing body and its constituents. … the mere fact that the contract has to be entered into in conformity with and subject to restrictions imposed by law does not per se impinge on the consensual element in the contract. "Compulsion of law is not coercion" and despite such compulsion, "in the eye of law, the agreement is freely made“…
8
Contract Act: Undue Influence
16. Undue influence defined.- (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another9
… Cond
(a) where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
10
… Cond
(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).
11
Contract Act: Illustrations
(a) A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence. (b) A, a man enfeebled by disease or age, is induced, by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence.
12
… Cond
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
13
Judgement: Supreme Court
A transaction may be vitiated on account of undue influence where the relations between the parties are such that one of them is in a position to dominate the will of the other and he uses his position to obtain an unfair advantage over the other. It is manifest that both the conditions have ordinarily to be established by the person seeking to avoid the transaction: he has to prove that the other party to a transaction was in a position to dominate his will and that the other party had obtained an unfair advantage by using that position.
14
Judgement: Supreme Court
Generally speaking the relations of solicitor and client, trustee and cestui que trust, spiritual adviser and devotee, medical attendant and patient, parent and child are those in which such a presumption arises.
15
Contract Act: Fraud
17. Fraud defined.- "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract
1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact;
16
… Cond
(3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.-Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
17
Contract Act: Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound.
18
… Cond
(c) B says to A-"If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech. (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
19
Mithoolal Nayak v. LIC
Mr. Mahajan Deolal took out a policy with the LIC. Despite his treatment by a doctor for serious ailments just a few years back, he made a false statement in the policy to the effect that he had not been treated by any doctor.
20
Judgement: Supreme Court
In his answers to the questions put to him he not only failed to disclose what it was material for him to disclose, but he made a false statement to the effect that he had not been treated by any doctor for any such serious ailment as anaemia or shortness of breath or asthma. .. Fraud, according to S. 17 of the Indian Contract Act, 1872 (IX of 1872), means and includes inter alia any of the following acts committed by a party to a contract with intent to deceive another party or to induce him to enter into a contract-
21
… Cond
(1) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; and (2) the active concealment of a fact by one having knowledge or belief of the fact.
Judged by the standard laid down in S. 17, Mahajan Deolal was clearly guilty of a fraudulent suppression of material facts when he made his … statements which he must have known were deliberately false.
22
DDA v. Skipper Construction
A builder had made three times bookings compared to the available units. The Supreme Court construed it to be a fraud under Section 17(3), as it was a promise which could never be fulfilled.
23
Judgement: Supreme Court
In our view, builders are not in law supposed to enter into agreements with more number of buyers than there are flats, unless each of the buyers in excess of the number of available units of accommodation is put on notice that his purchase will depend upon the availability of units of accommodation. Accepting booking from excess number of buyers without adequate notice to them about the contingent nature of their contracts cannot be said to be fair dealing.
24
Contract Act: Misrepresentation
18. Misrepresentation defined."Misrepresentation" means and includes-(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him;
25
… Cond
(3) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
26
doc_524877860.ppt
A voidable contract, unlike a void contract, is a valid contract. At most, one party to the contract is bound. The unbound party may repudiate the contract, at which time the contract is void.
Voidable Contracts
1
Voidable Contracts
2
Case: Mischief by One Party
Sabrawal’s car had done 1, 50, 000 Kms. Sabrawal repainted the car and tempered the meter and represented to Rajesh that the car had done only 20, 000 Kms. Rajesh accepted the offer to buy the new looking car for Rs. Two lakhs. He paid an advance of Rs. 40, 000. Situation 1:
Later, Rajesh learnt from reliable sources that the car was actually old. Rajesh wants his money back. Sabralwal insists that he should pay the balance and take the car. 3
Cond…
Situation 2:
Later, Rajesh learnt from reliable sources that the car was actually old. However, in this while, the government imposed taxes which has made cars a lot more expensive. Now, Sabrawal wants to return back Rs. 40, 000 to Rajesh and not give him the car. While Rajesh is insistent on paying the balance amount and taking the car away.
4
Indian Contract Act: Voidability
19. Voidability of agreements without free consent.- 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. A party to a contract, whose consent was caused by fraud or misrepresentation, may, if he thinks fit, insist that the contract shall be performed, and that he shall be put in the position in which he would have been if the representations made had been true.
5
Indian Contract Act: Coercion
15. Coercion defined.- "Coercion" is the committing, or threatening to commit, any act forbidden by the Indian Penal Code (45 of 1860), or the unlawful detaining, or threatening to detain, any property, to the prejudice of any person whatever, with the intention of causing any person to enter into an agreement.
6
S.S. Sakhar Ltd.v. C.I.T. Kolhapur
The Sugar Co-operative Societies of Maharashtra are governed by the provisions of Maharashtra Cooperative Societies Act, 1960. Its members are predominantly sugarcane farmers. Under the law, the Co-operatives compulsorily took deposits from its farmer members. The question arose if this was coercion and a ground for making the contract voidable.
7
Judgement
… the bye-laws of the Co-operative Society constitute a contract between the Society represented by its managing body and its constituents. … the mere fact that the contract has to be entered into in conformity with and subject to restrictions imposed by law does not per se impinge on the consensual element in the contract. "Compulsion of law is not coercion" and despite such compulsion, "in the eye of law, the agreement is freely made“…
8
Contract Act: Undue Influence
16. Undue influence defined.- (1) A contract is said to be induced by "undue influence" where the relations subsisting between the parties are such that one of the parties is in a position to dominate the will of the other and uses that position to obtain an unfair advantage over the other. (2) In particular and without prejudice to the generality of the foregoing principle, a person is deemed to be in a position to dominate the will of another9
… Cond
(a) where he holds a real or apparent authority over the other or where he stands in a fiduciary relation to the other; or (b) where he makes a contract with a person whose mental capacity is temporarily or permanently affected by reason of age, illness, or mental or bodily distress.
10
… Cond
(3) Where a person who is in a position to dominate the will of another, enters into a contract with him, and the transaction appears, on the face of it or on the evidence adduced, to be unconscionable, the burden of proving that such contract was not induced by undue influence shall lie upon the person in a position to dominate the will of the other. Nothing in this sub-section shall affect the provisions of section 111 of the Indian Evidence Act, 1872 (1 of 1872).
11
Contract Act: Illustrations
(a) A having advanced money to his son, B, during his minority, upon B's coming of age obtains, by misuse of parental influence, a bond from B for a greater amount than the sum due in respect of the advance. A employs undue influence. (b) A, a man enfeebled by disease or age, is induced, by B's influence over him as his medical attendant, to agree to pay B an unreasonable sum for his professional services. B employs undue influence.
12
… Cond
(c) A, being in debt to B, the money-lender of his village, contracts a fresh loan on terms which appear to be unconscionable. It lies on B to prove that the contract was not induced by undue influence.
(d) A applies to a banker for a loan at a time when there is stringency in the money market. The banker declines to make the loan except at an unusually high rate of interest. A accepts the loan on these terms. This is a transaction in the ordinary course of business, and the contract is not induced by undue influence.
13
Judgement: Supreme Court
A transaction may be vitiated on account of undue influence where the relations between the parties are such that one of them is in a position to dominate the will of the other and he uses his position to obtain an unfair advantage over the other. It is manifest that both the conditions have ordinarily to be established by the person seeking to avoid the transaction: he has to prove that the other party to a transaction was in a position to dominate his will and that the other party had obtained an unfair advantage by using that position.
14
Judgement: Supreme Court
Generally speaking the relations of solicitor and client, trustee and cestui que trust, spiritual adviser and devotee, medical attendant and patient, parent and child are those in which such a presumption arises.
15
Contract Act: Fraud
17. Fraud defined.- "Fraud" means and includes any of the following acts committed by a party to a contract, or with his connivance, or by his agent, with intent to deceive another party thereto or his agent, or to induce him to enter into the contract
1) the suggestion, as a fact, of that which is not true, by one who does not believe it to be true; (2) the active concealment of a fact by one having knowledge or belief of the fact;16
… Cond
(3) a promise made without any intention of performing it; (4) any other act fitted to deceive; (5) any such act or omission as the law specially declares to be fraudulent. Explanation.-Mere silence as to facts likely to affect the willingness of a person to enter into a contract is not fraud, unless the circumstances of the case are such that, regard being had to them, it is the duty of the person keeping silence to speak, or unless his silence is, in itself, equivalent to speech.
17
Contract Act: Illustrations
(a) A sells, by auction, to B, a horse which A knows to be unsound. A says nothing to B about the horse's unsoundness. This is not fraud in A. (b) B is A's daughter and has just come of age. Here, the relation between the parties would make it A's duty to tell B if the horse is unsound.
18
… Cond
(c) B says to A-"If you do not deny it, I shall assume that the horse is sound." A says nothing. Here, A's silence is equivalent to speech. (d) A and B, being traders, enter upon a contract. A has private information of a change in prices which would affect B's willingness to proceed with the contract. A is not bound to inform B.
19
Mithoolal Nayak v. LIC
Mr. Mahajan Deolal took out a policy with the LIC. Despite his treatment by a doctor for serious ailments just a few years back, he made a false statement in the policy to the effect that he had not been treated by any doctor.
20
Judgement: Supreme Court
In his answers to the questions put to him he not only failed to disclose what it was material for him to disclose, but he made a false statement to the effect that he had not been treated by any doctor for any such serious ailment as anaemia or shortness of breath or asthma. .. Fraud, according to S. 17 of the Indian Contract Act, 1872 (IX of 1872), means and includes inter alia any of the following acts committed by a party to a contract with intent to deceive another party or to induce him to enter into a contract-
21
… Cond
(1) the suggestion, as to a fact, of that which is not true by one who does not believe it to be true; and (2) the active concealment of a fact by one having knowledge or belief of the fact.
Judged by the standard laid down in S. 17, Mahajan Deolal was clearly guilty of a fraudulent suppression of material facts when he made his … statements which he must have known were deliberately false.
22
DDA v. Skipper Construction
A builder had made three times bookings compared to the available units. The Supreme Court construed it to be a fraud under Section 17(3), as it was a promise which could never be fulfilled.
23
Judgement: Supreme Court
In our view, builders are not in law supposed to enter into agreements with more number of buyers than there are flats, unless each of the buyers in excess of the number of available units of accommodation is put on notice that his purchase will depend upon the availability of units of accommodation. Accepting booking from excess number of buyers without adequate notice to them about the contingent nature of their contracts cannot be said to be fair dealing.
24
Contract Act: Misrepresentation
18. Misrepresentation defined."Misrepresentation" means and includes-(1) the positive assertion, in a manner not warranted by the information of the person making it, of that which is not true, though he believes it to be true; (2) any breach of duty which, without an intent to deceive, gains an advantage to the person committing it, or any one claiming under him, by misleading another to his prejudice or to the prejudice of any one claiming under him;
25
… Cond
(3) causing, however innocently, a party to an agreement to make a mistake as to the substance of the thing which is the subject of the agreement.
26
doc_524877860.ppt