Whenever you enter into a contract, you expect that your agreement will be legally enforceable. That means that if the other party doesn’t respect the terms of the agreement, you can go to your lawyer and, together, you can try to get a remedy from that other party. Usually, it happens like this.
However, there are some special scenarios where the law states a contract cannot be enforced. In these situations, there is an external problem, or some crucial factors have been missing from the contract process. This is when you deal with a void or voidable contract.
In this article, we take a look at the difference between a voidable contract and a void contract. We’ll also look at when such contracts come into play and what happens next.
What is a voidable contract?
A voidable contract is a contract where there is some problem as to the way the contract was entered into. This problem, or defect, means that the contract might not be enforceable by one (or sometimes either) of the parties.
We’ll take a look at the different types of defects, such as fraud, deceit, misrepresentation, duress or undue influence, or where one of the parties does not have full capacity to enter into a contract (for example, where the party is a minor or is intoxicated). However, all these types have one common characteristic – they were not originally formed on the basis of “true” consent.
A contract that suffers from one of these defects can be described as “voidable”. It is still treated as valid and enforceable, but the party affected by the defect has a choice – continue to perform the contract or rescind it.
If the party chooses to rescind the contract, the contract becomes void.
When is a contract voidable?
You may be able to treat the contract as voidable in the following situations:
- Fraud and misrepresentation. If you were misled by the other party while entering into a contract, that fraud or misrepresentation may give you a right to rescind the contract.
- Duress. A party will not have truly consented to a contract if they only entered into that contract out of duress. Examples include where there has been actual or threatened violence, or imprisonment, or threats to damage the other party’s goods, or economic interests.
- Undue influence. This is where you are in some form of a relationship where you are especially dependent on the other party (for example, the relationship between a doctor and a patient). Any influence put on a vulnerable person to enter into a contract can be considered an abuse.
- Minors. The rules are different in each jurisdiction as to when a person becomes an adult, and what happens to contracts entered into by a minor. Generally, under the common law, a contract made by a minor will be treated as voidable, although there are exceptions. The contract might also be “ratified” (that is, approved) by the minor when they reach adult age.
- Mental incapacity and intoxication. Similar to the position for minors, a contract might be voidable where it is entered into by a person who has an impaired mental capacity. That may have arisen due to a disability, injury or illness, or maybe because the person is intoxicated (for example, by drugs or alcohol).
What is a void contract?
A void contract is an agreement which is not legally enforceable. Unlike a voidable contract, the parties to a void contract have no discretion or choice in relation to what happens. The contract is said to be void “ab initio” – a Latin phrase meaning “from the beginning”. That means the contract is treated as having been invalid from the beginning. It is as if the contract had never been created, which means:
- No rights and obligations arise under the contract.
- No title to property passes under the contract.
When is a contract void?
A contract will be found to be void in the following situations:
- Illegality. A contract will be treated as void and not enforceable where the subject matter of the contract would involve illegal conduct. For example, you could not enforce a contract under which the other party is required to commit a criminal act.
- Public policy. Similar to illegality, a contract will usually be treated as void if the subject matter contradicts public policy.
- Mistake. Some types of mistake, by one or both of the parties, may lead to a contract being void. For example, a mistake as to the true identity of the other party, or as to the subject matter of the contract, could be sufficient for the contract to be treated as void.
What should you do if you have a voidable or void contract?
It can be difficult to establish clearly – and prove – that a contract is voidable, or void. The facts and legal issues are often heavily disputed, and usually arise as part of a wider contract dispute – perhaps a party is alleged not to be performing the contract properly or wants to get out of its obligations.
If you think there are good reasons why your contract might not be enforceable (or if you are on the other side, and you are disputing a claim that the contract is void), it’s important to have good evidence.
Make sure you retain a copy of the contract and details of any correspondence before and after the contract was made. Try and collect as much evidence as possible about the event or circumstances that are being argued as making the contract unenforceable.
You might be right that your contract is unenforceable because it is voidable or void. But it’s important to be as sure as you can – and get expert advice if you need it – before taking further action. If you get the analysis wrong – you could end up making the situation worse.
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