As a small business owner handling contracts, you may have come across the terms ‘void contract’ and ‘voidable contract’, but you may not know exactly what these mean. Sometimes people don’t realise that these terms are distinct and shouldn’t be used interchangeably.
In this article, we’ll clarify the difference between void and voidable contracts, telling you what you need to know before you sign anything.
What is a void contract?
A void contract, as the name suggests, is a contract that is unenforceable from the outset. It lacks legality and cannot be upheld by the law. Such contracts are considered null and void - as if they never existed in the first place.
There can be specific situations in which a contract may be classified as void:
- Illegal activity – if a contract requires one or both parties to engage in illegal activities, it’s automatically void (for example, a contract to sell stolen goods)
- Lack of capacity – when one of the contracting parties does not possess the legal capacity to enter into a contract, the contract is void (a common example is when a party is a minor, as minors cannot enter into legally binding contracts)
- Death of a party – if one of the parties to the contract passes away before the contract is fulfilled, the contract may become void.
- Impossible to perform – if it becomes impossible to perform the terms of the contract because of unforeseen circumstances, depending on the situation, the contract may be considered void
Is a void contract enforceable?
In the UK, void contracts aren’t enforceable. They’re considered null and void by law and the courts will not intervene to enforce any of its terms. This serves as a fundamental principle of contract law, ensuring that illegal or unenforceable agreements are not upheld.
As such, you should seek legal advice and thoroughly review the terms of any contract to avoid entering into a void agreement.
What is a voidable contract?
A voidable contract is a formal agreement between two parties that may be rendered unenforceable for various legal reasons. These reasons include:
- Failure to disclose material facts – if one or both parties fail to disclose a material fact relevant to the contract, it can render the contract voidable (for example, if a seller deliberately conceals known defects in a product they’re selling, the buyer may have the right to void the contract)
- Mistake, misrepresentation or fraud – a voidable contract may result from a mutual mistake, misrepresentation or fraud (if a party is induced into the contract through false information or deception, they may have the right to void the contract)
- Undue influence or duress – contracts entered into under undue influence or duress are voidable (if one party exerts excessive pressure or influence on the other, it may invalidate the contract)
- Unconscionable terms – contracts with terms that are considered unconscionable, meaning they’re unreasonably one-sided or unfair, may be voidable
- Breach of contract – a breach of contract can lead to a contract becoming voidable if the innocent party uses it as a means of ending the contract
Is a voidable contract enforceable?
Unlike a void contract, a voidable contract is considered to be valid and enforceable. However, it can be rejected by the party affected by the contract's defects. If the affected party chooses not to reject the contract despite the issues, the contract remains valid and enforceable.
The simplest way to void a voidable contract is for both parties to mutually agree to cancel it. This is often the most practical and straightforward resolution, as it avoids lengthy legal battles and disputes.
Examples of void and voidable contracts
To better understand these concepts, let's explore some real-world examples:
Void contract example
Imagine a business contract in which one party agrees to supply illegal materials. This contract is void from the start because it involves illegal activity and is therefore unenforceable.
Voidable contract example
Imagine a situation where a small business owner signs a lease for a commercial unit, only to later discover that the landlord failed to disclose significant structural issues with the unit (which they knew about and the tenant had asked about during the initial enquiry).
Depending on the circumstances, the tenant may have the option to void the lease because of the landlord's failure to disclose material facts and (in doing so) misrepresenting the condition of the unit.
How to mutually void a contract
When both parties agree that voiding the contract is the best course of action, they can do so through mutual consent. This can be achieved through a formal written agreement that outlines the termination of the contract. You should document the mutual agreement to void the contract to avoid any potential disputes in the future.
Get legal assistance from LawBite
Entering into a void contract can lead to automatic cancellation of the contract, while a voidable contract offers an opportunity for correction or cancellation. If you’re unsure of the enforceability of your contract or want help negotiating a contract, you should speak to a legal expert.