Void and voidable contracts are terms used in contract law to describe agreements that lack legal enforceability or have certain defects. Here are five key differences between void and voidable contracts:
Legal Consequence:
Void Contract: A void contract is considered as if it never existed from the beginning. It is entirely without legal effect, and neither party can enforce any of its terms. It is treated as though the contract was never validly formed.
Voidable Contract: A voidable contract, on the other hand, is initially valid and enforceable, but it gives one party the option to void (cancel) the contract. The party with the power to void can choose to either enforce the contract or void it due to specific circumstances.
Formation Issues:
Void Contract: A contract may be void if it lacks one of the essential elements required for a valid contract. For example, a contract based on an illegal purpose or involving a party lacking contractual capacity may be considered void.
Voidable Contract: A voidable contract is validly formed but may be voided under certain conditions, such as fraud, undue influence, duress, misrepresentation, or a party lacking the capacity to contract.
Enforceability:
Void Contract: A void contract cannot be enforced by either party, and the courts will not recognize any rights or obligations arising from it.
Voidable Contract: Until the contract is voided by the party with the power to do so, it remains valid and enforceable. If the injured party chooses not to void the contract, it continues to be binding.
Party’s Right to Avoid:
Void Contract: Since a void contract is considered null and void from the outset, there is no need for a party to take any action to avoid it. It is automatically unenforceable.
Voidable Contract: The party with the power to void a contract must take affirmative action to disaffirm or cancel the contract. This action is typically taken within a reasonable time once the party becomes aware of the grounds for avoidance.
Third-Party Rights:
Void Contract: Generally, third parties are not affected by a void contract because it is as if the contract never existed.
Voidable Contract: In some cases, third parties who acquire rights in good faith before the contract is voided may be able to enforce those rights even if the contract is later voided.
Understanding these distinctions is important in contract law to determine the legal consequences of a particular contractual arrangement and the rights and remedies available to the parties involved. It’s advisable to seek legal advice when dealing with void or voidable contracts to ensure proper understanding of the specific circumstances and applicable laws.