Voidable contract

According to 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, is a voidable contract.” Thus, a voidable contract is one which is enforceable by law at the option of one of the parties only. Until it is avoided or rescinded by the party entitled to do so by exercising his option in that behalf, it is a valid contract.

Usually a contract becomes voidable when the consent of one of the parties to the contract is obtained by coercion, undue influence, misrepresentation or fraud. Such a contract is voidable at the option of the aggrieved party i.e., the party whose consent was so caused (secs. 19 and 19A). but the aggrieved party must exercise his option of rejecting the contract (i) within a reasonable time, and (ii) before the rights of third parties intervene, otherwise the contract cannot be repudiated.

Illustration.
(a) A : threatens to shoot B if he does not sell his new Bajaj scooter to A for Rs. 2,000. B agrees. The contract has been brought about by coercion and is voidable at the option of B.
(b) A. intending to deceive B. falsely represents that five hundred quintals of indigo are made annually at A’s factory, and thereby induces B to buy the factory. The contract has been caused by fraud and is voidable at the option of B.

The Indian contract act has laid down certain other situations also under which a contract becomes voidable. For example.

(i) When a contract contains reciprocal promises, and one party to the contract prevents the other from performing his promises, then the contract becomes voidable at the option at the party so prevented (sec. 53).

Illustration.

A. Contracts with B that A shall whitewash B’s house for Rs. 100. A is ready and willing to execute the work accordingly, but B prevents him from doing so. The contract becomes voidable at the option of A.

(ii) When a party to the contract promises to do a certain thing within a specified time, but fails to do it, then the contract becomes voidable at the option of the promisee. If the intention of the parties was that time should be of the essence of the contract. (sec.55)

Illustration.

X Agrees to sell and deliver 10 bags of wheat to Y for Rs. 2,5000 within one week. But X does not supply the wheat within the specified time. The contract becomes voidable at the option of Y.

Consequences of rescission of voidable contract. Section 64 lays down the rights and obligations of the parties to a voidable contract after it is rescinded. The section states that when a person at whose option a contract has become has received any benefit from another party to such contract, he must restore such benefit. If an amount has been received as a security for the due performance of the contract, such earnest money deposit is not to be returned if the contract becomes voidable under section 55 on account of the promisor’s failure to complete the contract at the time agreed and has been rescinded by the promisee because it is not a benefit received under the contract.