Definitions
The fundamental definition of a void agreement is one that is unenforceable and cannot be ratified or confirmed by the parties who are bound to it. For example, a void agreement is one that is never legally binding in the first place. It is null and has no legal effect. Whereas, a voidable contract is one that is binding on the parties unless they choose to void it . A voidable agreement is one that is capable of being enforced until declared void. The parties to it may elect to either enforce it or terminate it (and thereby render it void). A voidable contract is therefore one that can be enforced, but is susceptible to being avoided by one of the parties. The distinction between the two is therefore significant and vital in determining whether a legal agreement should be enforced.
Legal Ramifications
Legal Consequences of a Void or a Voidable Contract
A void agreement is a null and void, and therefore has no legal consequences. Thus, with the balancing of all the different negative consequences of a void agreement, the parties do not face any consequences or legal effects arising out of a void agreement.
However, in case of a voidable contract, the parties may face some legal consequences. A voidable contract is enforceable until the signed party enforces the contract and seeks remedy to void it. Hence, the legal consequence of a voidable contract is that it is binding for both parties unless one of the parties, who is not willing to be bound to the contract, seeks the remedy. Therefore, the party who seeks the remedy has the onus of demonstrating before the court why he or she should be relieved from the contract, i.e., if there exists some element of coercion, fraud or misrepresentation within the contract, in order to be able to enforce the remedy to void the contract.
Apart from this, the remedies to a voidable contract include: rescind the contract, affirm the contract and sue for damages and in some cases, specific performance.
Examples of Void Agreements
There are various agreements that are considered void in nature. Examples of such Agreements are as under:
- A contract entered into by a person personally disqualified from entering into a contract is void.
- A contract which is in restraint of marriage is void.
- A contract which restrains a Right to vote or to file a suit is void.
- A contract which restrains a doctor to practice anywhere else apart from a particular hospital is void.
- A contract which restrains trade or profession is void.
- A contract which is executed by minors is void.
- A contract which performance is impossible is void.
- A contract to do an impossible act is void.
- A contract in restraint of legal proceedings is void.
- A contract which is signed under duress or coercion is void.
- Contract which is executed by a person of unsound mind is void.
- A contract which is made fraudulently is void.
- A contract which is made based on misrepresentation or mistake is void.
- A contract with a fictitious corporation is void and
- A contract whose considerations are those that the law does not recognize as a lawful object or has been done by unlawful consideration is void ab initio.
Understanding Voidable Contracts
When a contract is deemed voidable, it means that it is valid as long as the legitimate party does not call for it to become void. The other party therefore has the option of affirming or voiding the contract.
In general, a contract can be voidable when it: If an inducement is made to one of the parties, meaning something is offered that would encourage them to enter into the agreement, that person may revoke their acceptance of the contract. They do not need to provide a reason for why they are voiding the contract, which means determining whether or not the contract is indeed voidable is inherently subjective. However, some of the instances in which a contract can be voidable are a bit more clear-cut. For example, situations in which illegality is present. For instance, it is common for contracts entered into by minors to be voidable, as minors don’t have the capacity to form a valid agreement.
How To Fix Void And Voidable Situations
In the event that an agreement turns out to be void, when it usually wouldn’t be, a party can seek a declaration of its rights from a Court. Under the legal principle of non est factum, which means "not my deed," – an innocent person can seek a Court declaration that an agreement signed by him or her is not binding where, for example, he or she was misled into signing an agreement different in substance than that intended. Parties may also seek restitution, in order to return to the position they would have been had the void contract never been made, such as by seeking a return of any money or property under the contract. This is known as the equitable remedy of ‘restitution quantum meruit’ -meaning "as much as deserved." Equitable remedies (as opposed to legal remedies of damages) are a category of legal remedies in the event that a contract is voidable. For parties seeking equitable remedies, specific performance – meaning the Court ordering the other to carry out their side of the bargain -is the most common equitable remedy employed by the Courts. In some circumstances, such as those involving misrepresentation, a contract can be declared voidable . So the party potentially affected by a voidable agreement can choose to either cancel it (thus also can potentially recovering any losses suffered under it), or to affirm it and be bound by its terms (and thus unable to later sue on any contract). It can be difficult to later change a party’s mind after an election to cancel. It is best to do so while you can still timely and unambiguously cancel. If a mistake was made, the parties can agree to rescission, meaning that under the equitable principle of "rescue" the contract will be brought back to life as if it never existed, but may then need to be redrafted or updated. There are many case law examples of void and voidable contracts in the context of alleged misrepresentation, for example Andrew Keith Preston v. Edward Storey, 2011 ONSC 3200. In this case, the Defendant stated an amount for the purchase price of property which was less than what he actually intended to charge. This type of error, although solemnized in writing, can be declared void. A defect in the consideration for a contract can also potentially render it void, such as in Geva Ltd. v 818323 Ontario Ltd., 2001 CanLII 9828 (ON CA). Similar defects in the formation of a contract can work to nullify it. These types of errors can be resolved by court declaration and/or rescission of the true agreement.
Suggestions On How To Prevent Voids And Voidables
Before entering any contractual agreement, it is essential to carefully assess and make sure that the contract is valid. This means conducting thorough research into the party with whom you intend to contract, and ensuring that you have all the legally required capacity to contract before signing. In order to reduce the possibility of entering into a contract that is voidable, parties are advised to: If the contract is made between registered companies, which are almost always represented by legal entities, it is always prudent to retain copies of the articles of incorporation, and usually the certificate of incorporation, prior to entering into any agreement. As mentioned previously, the Articles usually direct how the company is run and what capacities are given to the signatory.
In Closing
In conclusion, you will find that the difference between a void agreement and a voidable contract is critical from a legal perspective. The distinction depends on the circumstances and the parties involved in each case. The court may, for instance , require that the agreement or contract be enforced according to its original terms or deemed valid, according to section 2 (g) of The Indian Contracts Act, 1872. In such a case, the remedial functions granted by the court are expanded and the parties are able to obtain relief.
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