Contracts are essential for financial and legal operations and help to form the foundation of many relationships in our society. Not all contracts, however, are legally enforceable. Some are void, while others can be voidable. Both these terms are interchangeably used in contracts, but not knowing the difference between the two can lead to serious legal consequences.
What is a Void Contract?
Avoid contract is alegally non-existent agreement, rendering itlegallyunenforceable from the moment of its creation. This distinct legal status arises due to specific characteristics that fundamentally violate the essential elements of a valid contract. Any valid contract has all the significant elements necessary by the law; however, a void contract misses one or more of such crucial elements or has flaws in other ways, making it unenforceable.
Examples of Void Contracts
Void contracts are characterised by their fundamentallack of enforceability due to their illegal, capacity deficient, or public policy-violating nature. Let's explore some real-life examples of void contracts to better understand the concept:
- Illegal drug transactions
Any contract aimed at facilitating illegal drug transactions is null and void. For instance, Avnish makes a contract with Rey where he would buy his camera. In return for the same, Avnish will give a packet of cocaine (a banned drug) to Rey. This contract will be considered void since the offered product is illegal.
- Contracts with mentally unsound individuals
If you happen to get into a contract with a mentally unsound and unfit individual, it is considered void. One of the main criteria while forming a contract is both parties need to be of sound mind. Violation of this will cause the contract to become void.
For instance, Avnish makes a contract with Rey to buy his camera worth Rs.50,000 for Rs.15. Being mentally unsound, Rey accepts this contract. However, this is void since the Indian Contract Act clearly states a mentally challenged individual cannot make any contract.
- Violations of public policy
Contracts that go against established public policy are also void. An example of this could be a contract between two individuals to engage in illegal gambling activities that are prohibited by law. Since such contracts promote activities against the public interest, they are considered void.
Reasons Why a Contract May Be Void
Thereasons why a contract may be considered void revolve around the fundamental principles of legality, capacity, and public policy. Understanding these reasons is crucial for both legal professionals and individuals engaging in contractual agreements to avoid legal discrepancies. Following are certain reasons why a contract may be considered void:
- Frustration or supervening impossibility
Supervising impossibility or frustration refers to circ*mstances that emerge during contract implementation. It deals with situations in which unforeseeable circ*mstances outside the parties' control keep them from carrying out their end of the bargain.
When certain circ*mstances make the fulfilment of a lawful contract impracticable, frustration may occur. There is a noticeable high threshold for frustration. If something is initially impossible, the agreement is null and void. On the other hand, in the event of eventual impossibility, the contract is nullified when one party is unable to carry out its obligations.
- Change of laws
In some cases, laws can render a previously enforceable contract invalid. A contract can be instantaneously void upon the introduction of new legislation. Furthermore, the contract could not be binding if information that the parties involved were unaware of becomes public. Because every contract is different, figuring out if it is legitimate can be difficult.
- Illegal purposes
One of the most straightforward reasons why a contract may be deemed void is its involvement in illegal or unlawful activities. A contract that is established for a purpose that is contrary to the law or public policy is inherently void. The legal system cannot, and will not, enforce fundamentally illegal agreements. For instance, a contract formed to facilitate drug trafficking, money laundering, or any other criminal activity is void ab initio (from the beginning).
- Lack of legal capacity
To engage in a contract, both parties must be able to enter into agreements legally. If this ability is lacking in one or more parties, the agreement may be deemed null and invalid. This incapacity may appear in several ways, including when a party is underage, mentally ill, or under the influence of drugs or alcohol. For example, due to their age and limited legal competence, minors are often not able to engage in legally binding contracts.
What is a Voidable Contract?
A contractis considered voidable whereone of the parties in a contract has the option toenforce or reject the contract where agreement terms are not appropriately represented or respected. This mainly suggests that the information in the contract was not accurate or that one of the parties did not respect the agreement properly. Any voidable contract is considered valid and legal until cancelled or revoked.
Examples of Voidable Contracts
To understand a voidable contract clearly, look at the examples cited below. It suggests contracts are valid at the beginning but can become voidable under different scenarios:
- Example 1
Shubh wants to buy a house from Vir. Shubh is satisfied with the house as it is. His main attraction of the house was the home gym, which Vir had turned his garage into. The contract states that the house needs to be as it is, but Vir turns the home gym back into the garage again. Hence, this contract will now be considered voidable. Shubh has the option to cancel the deal and declare the contract to be void, or he can accept the contract as it is.
- Example 2
Contracts that were made when one party had undue influence on the other may be voidable. An illustration would be if a caretaker put pressure on an old person to transfer their assets to them.
Reasons Why a Contract May Be Voidable
There are several reasons why a contract may be considered voidable. Let us look at the points that make any contract voidable in nature:
- Minor
In contract law, the age of the persons involved is critical in assessing the contract's legitimacy. Section 11 of the Indian Contract Act states that an individual must be 18 years old to be considered competent to engage in a contract. Anyone under this age is considered a minor, and any contract with them is only an agreement. Importantly, such agreements only become legally enforceable when the minor reaches the age of 18. Here, the minor has the option to cancel the contract when he reaches 18 years of age.
- Consent of party
The sincere and free consent of the parties concerned is the foundation of a legally binding agreement. However, if the party has not provided free consent (i.e. if the consent was due to coercion, undue influence, fraud or misrepresentation), they can cancel the contract. When such components are present, contracts are voidable for the party harmed by the false consent.
- Misrepresentation
If both parties act under a joint misunderstanding of fact, the contract may be voidable. It's important to remember that all persons engaged in the error must share it for this to apply. A simple misinterpretation of the contract’s terms does not constitute an error of fact. When such faults are made by both parties, the contract is voidable, opening the door to possible annulment.
Key Differences Between Void and Voidable Contracts
Void and voidable contracts are distinct legal concepts with significant differences that impact their enforceability and the rights of the parties involved. Here are a few pointers that will help you understand thekey difference between void and voidable contracts:
Enforceability
The primary and most fundamental distinction between void and voidable contracts is their enforceability. Avoid contract is inherentlyunenforceable from the moment of its creation. It lacks the essential elements of a legal contract, making it as if the contract never existed. In contrast, avoidable contract isinitially valid and enforceable. However,it can be voided or cancelled by one of the parties involved if specific conditions are met.
Initiation
Void contracts are typically formed withelements that render them void from the outset. These elements include illegality, incapacity, or violations of public policy. In essence, they are "born" unenforceable. In contrast,voidable contractscommence as valid and binding agreements. They onlybecome voidable due to certain later actions or circ*mstances, such as misrepresentation, duress, or lack of free consent.
Causes
Contracts that arevoid are usually invalidated because they arefundamentally unlawful, impossible, or against public policy. Such contracts are illegal and are instantly invalid. Voidable contracts are typicallydeclared void at the request of one of the parties, sometimes owing to force, undue influence, fraud, misrepresentation, or incompetence.
Time of Void
Voidable contracts cancontinue to be valid and enforceable for a certain period until the party with the right to void decides to do so. This is typically within a reasonable time frame. In contrast,void contracts are consideredvoid from the outset and cannot be made valid under any circ*mstances.
Seeking Damage
In case of avoid contract,neither of the parties that have come to an agreementcan seek or claim damages due to non-performance of the contract. On the other hand, in case of avoidable contract, any of thedissatisfied parties can seek and claim compensation due to non-performance of the contract as well as losses incurred due to the same.
Overall, void and voidable contracts can be confusing to understand at times. While void means the contract is null, voidable means any one of the parties can make it void or keep it the same. Understanding the key difference between void and voidable contracts is significant in making legal decisions. Recognising the differences helps you safeguard your interests and rights regarding contractual agreements and get the best out of them.
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