It is essential to understand the differences between void and voidable contracts because they carry different legal implications. In this article, we will explain the key differences between void and voidable contracts, along with examples.
Table of Contents
- What is a Void Contract? (With examples)
- What is a Voidable Contract? (With examples)
- Difference Between Void and Voidable Contracts
- How Might a Voidable Contract Become Valid?
- Void vs. Voidable Contract: Real-World Implications
What is a Void Contract?
A void contract is an agreement which is invalid from its start. It has zero legal effect and cannot be enforced by law. Hence, it means that as if the contract was never existed. Since the void contracts lack in one or more essential elements that are required for a valid contract, such as lawful consideration, legal purposes, free consent etc., they are unenforceable.
Characteristics of a Void Contract:
- It has No Legal Effect: A void contract has no binding legal power. The parties involved in it are not obligated to perform under the terms of the contract.
- It Lacks Validity from the Beginning: It is inherently unenforceable from the inception moment. Thus, it has no opportunity for ratification.
- It’s illegal: Commonly, the void contracts arises from agreements involving any illegal activity, fraudulent intentions, or agreements that violate public policy.
Example of a Void Contract:
Consider the case of two parties who entered an agreement which involves selling some illegal products. This is an example of a void agreement because of its unlawful nature. Even if both the parties agrees to perform the same it is not enforceable by law, and hence void.
What is a Voidable Contract?
Now, a voidable contract, on the contrary, is a valid and enforceable agreement. In this, one of the parties involved has the option to void or cancel the contract. Unlike the earlier (void contract), a voidable contract is legally binding on the parties unless the aggrieved party chose to void the same. There are many reasons like misrepresentation, coercion, fraud or undue influences, which can make a contract voidable.
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Voidable Contract Meaning:
A voidable contract is legal until the party with the right to void the contract decides to exercise the option to void the same. Hence, a voidable contract remains enforceable unless the affected party voids it. If that party chooses not to cancel the contract, it contract can remain valid.
Example of a Voidable Contract:
Consider a situation where someone is coerced into signing a contract under duress. In this case, the contract is voidable because the coerced party has the legal right to void the agreement due to the lack of free consent. However, if they choose not to void it, the contract will still be enforceable.
Difference Between Void and Voidable Contracts
The difference between void and voidable contracts is primarily in enforceability and validity. Let’s brek it down further for better understanding:
- Validity:
- A void contract is invalid from the time of creating it. A voidable contract is valid until one involved party decides to void the same.
- Enforceability:
- Void contracts cannot be enforced by law, since it is illegal by nature. Voidable contracts can be enforced and it remains valid unless cancelled by the affected party.
- Legal Effect:
- A void contract is illegal and unenforceable in court. A voidable contract, on the other hand, remains enforceable until a party decides to void it.
- Rights of Parties:
- In a void contract, no party has any legal obligation since the contract is itself invalid. On the other hand, in a voidable contract, both the parties have their rights and obligations until one party exercises their right to void the contract.
Distinguishing Void and Voidable Contracts with Examples:
- Void Contract Example: A contract to commit a crime, such as an agreement to steal something, is void because it is not legal.
- Voidable Contract Example: A contract signed under undue influence or fraud is voidable. For example, the party influenced or defrauded can void it or proceed with the same.
Read More: What is a Corporate Guarantee in Construction
How Might a Voidable Contract Become Valid?
A voidable contract can become valid through ratification, where the party with the option to void the contract agrees to continue with it despite the issue that made it voidable. Ratification removes the ability to cancel the contract, and it becomes fully binding on both parties.
Ratification Makes a Voidable Contract Binding:
After it is ratified, a voidable contract loses its voidable nature, and the involved parties becomes legally bound to fulfill their contractual obligations. For example, if someone enters into a contract based on misinformation, but they later agrees to proceed with the terms (after becoming aware of the correct information), they have “ratified” the contract.
Key Differences Between Void Agreement and Voidable Contract
A void agreement refers to an agreement that lacks enforceability from its start, like a void contract. However, a voidable contract is enforceable unless one party decides to void it.
Example of Voidable Contracts in Real Estate:
In real estate, a voidable contract will occur when one party enters in to it based on false information by the other party, or misled about a key fact about the property. For example, if the buyer was led by the seller of a property to believe that the property under discussion was free of legal disputes when in reality it wasn’t, the buyer can void the contract. However, if the buyer chooses not to void it even after knowing the information, the contract would loose its voidable nature and will remain valid and enforceable.
Voidable Contract Section in Law:
The Indian Contract Act, 1872, Section 19, is about voidable contracts. It outlines the rights of the aggrieved party to either uphold or void the contract when the had given consent under coercion, fraud, or misrepresentation.
Void vs. Voidable Contract: Real-World Implications
The real-world implications of void and voidable contracts are significant in the legal context. A void contract carries absolutely no weight in the court, and none of the parties can claim damages or enforce the terms of such a contract. In contrast, voidable contracts remain enforceable unless cancelled by the aggrieved party. Understanding the difference between void and voidable contracts can prevent parties from entering unenforceable agreements and protect their interest from any unfair term.
Valid, Void, and Voidable Contracts:
Contracts can generally fall into three categories: valid, void, and voidable. A valid contract meets all legal requirements and hence it is enforceable by law. A void contract is unenforceable from inception, while a voidable contract is enforceable unless voided by one party with the right to do so, as explained above.