From the point of view of enforceability a contract may be valid or voidable or void or unenforceable or illegal.
1. Valid contract:
A valid contract is an agreement enforceable by law. An agreement becomes enforceable by law when all the essential elements of a valid contract as enumerated above are present.
2. 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. Until it is avoided or rescinded by the party entitled to do so by exercising his option in that behalf, it is a valid contract.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 (Sees. 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.
A, threatens to shoot B if he does not sell his new Bajaj bike to A for Rs 2,000. B agrees. The contract has been brought about by coercion and is voidable at the option of B.
3. Void contract:
Literally the word ‘void’ means ‘not binding in law, accordingly the term ‘void contract’ implies a useless contract which has no legal effect at all. Such a contract is a nullity, as for there has been no contract at all. Section 2(j) defines: “A contract which ceases to be enforceable by law becomes void, when it ceases to be enforceable.”
It follows from the definition that a void contract is not void from its inception and that it is valid and binding on the parties when originally entered but subsequent to its formation it becomes invalid and destitute of legal effect because of certain reasons. For example, a valid contract is transformed into a void contract in the following situations:
(a) Supervening impossibility (Sec. 56):
A contract becomes void by impossibility of performance after the formation of the contract. For example, A and B contract to marry each other. Before the time fixed for the marriage, A goes mad. The contract to marry becomes void.
(b) Subsequent illegality (Sec. 56):
A contract also becomes void by subsequent illegality. For example, A agrees to sell B 100 bags of wheat at Rs 1650 per bag. Before delivery, the Government bans private trading in wheat. The contract becomes void.
“An agreement not enforceable by law is said to be void” [Sec. 2(g)], Thus, a void agreement does not give rise to any legal consequences and is void ab-initio. In the eye of law such an agreement is no agreement at all from its very inception.
There is absence of one or more essential elements of a valid contract, except that of ‘free consent,’ in the case of a void agreement. Thus, an agreement with a minor is void ab-initio as against him, because a minor lacks the capacity to contract.
Similarly, an agreement without consideration is void ab-initio, of course with certain exceptions as laid down in Section 25. Certain agreements have been expressly declared void in the Contract Act e.g., agreements which are in restraint of trade or of marriage or of legal proceedings or which are by way of wager.
A ‘void agreement’ should be distinguished from a ‘void contract’. A ‘void agreement’ never amounts to a contract as it is void ab-initio.
A ‘void contract’ is valid when it is entered into, but subsequent to its formation something happens which makes it unenforceable by law. Notice that a contract cannot be void ab-initio and only an agreement can be void ab-initio.
Obligation of person who has received advantage under void agreement or contract that becomes void:
In this connection Section 65 lays down that when an agreement is discovered to be void or when a contract becomes void, any person who has received any advantage under such agreement or contract is bound to restore it, or to make compensation for it, to the person from whom he received it.
4. Unenforceable contract:
An unenforceable contract is one which is valid in itself, but is not capable of being enforced in a court of law because of some technical defect such as absence of writing, registration, requisite stamp, etc., or time barred by the law of limitation.
For example, an oral arbitration agreement is unenforceable because the law requires an arbitration agreement to be in writing.
5. Illegal or unlawful contract:
The word ‘illegal’ means ‘contrary to law’ and the term ‘contract’ means ‘an agreement enforceable by law.’ As such to speak of an ‘illegal contract’ involves a contradiction in terms, because it means something like this an agreement enforceable by law and contrary to law.
There is apparent contradiction in terms. Moreover, being of unlawful nature, such an agreement can never attain the status of a contract. Thus, it will be proper if we use the term ‘illegal agreement’ in place of illegal contract’. An illegal agreement is void ab-initio.
An agreement is illegal and void if its object or consideration: (a) is forbidden by law; or (b) is of such a nature that, if permitted, it would defeat the provisions of any law; or (c) is fraudulent; or (d) involves or implies injury to the person or property of another; or (e) the court regards it as immoral, or opposed to public policy (Sec. 23).
Thus, an agreement to commit murder or assault or robbery or to make a gift in consideration of illicit intercourse would be illegal and void ab-initio.