A contract that isn’t legally enforceable, starting from the time it was created
Over 1.8 million professionals use CFI to learn accounting, financial analysis, modeling and more. Start with a free account to explore 20+ always-free courses and hundreds of finance templates and cheat sheets.
A void contract is a contract that isn’t legally enforceable, starting from the time it was created. While both a void and voidable contract are null, a void contract cannot be ratified. In a legal sense, a void contract is treated as if it was never created and becomes unenforceable in court.
Summary
A void contract is legally unenforceable, starting from the time it was created.
Void contracts arise for many reasons, including unlawful consideration.
Voidable contracts differ from void contracts in that they can be carried out legally if both parties wish to do so.
Void Contracts – Causes
1. incompetence
There are many ways in which a contract can become void. If one party is incompetent, they legally become unable to agree to a contract. This can include one of the people entering into the contract while being incapacitated or unable to make a proper judgment.
2. Inclusion of an unlawful object or consideration
The contract can also be considered void if an unlawful object or consideration is involved in the agreement. This can include the promise of sex, an illicit substance, or anything else causing one or both parties to break the law.
Another common reason for a void contract is the impossibility of performance. It occurs when any aspect of the contract becomes impossible to carry out by one of the parties.
There are many reasons a void contract can arise, and looking at the legal elements that cause them will help you to understand them better.
Void Contract – Elements
Looking at some of the elements of a contract can help to determine what can cause a contract to be void.
Acceptance of Offer: Both parties must be fully aware of all elements of the contract. They must accept all aspects of the contract and what it entails.
Intention to Create Legal Relations: A contract does not always exist because of a promise between parties. The nature of the relationship between the individuals engaging in the contract must be evaluated, as well as the contract itself.
Consideration: There must be an exchange of value between parties. If one party is knowingly benefiting from a contract at the expense of the other party, the contract is void.
Complete: The contract must be complete and specific in nature, or it will be considered void.
Voidable Contracts
The terms “void” and “voidable” contracts are often used interchangeably but are completely different in nature. While a void contract is completely unenforceable by law, a voidable contract is a valid agreement. However, the terms within a voidable contract provide one or both parties entering into the contract the ability to void the contract at any time.
Voiding a Contract – Steps
1. Determine which elements of the contract may render it void.
2. Pinpoint exactly which laws and reasons relate to the contract being void.
3. Ensure all available information relating to the contract is collected (e.g., communication between parties, signed documents, etc.).
4. Determine whether a new contract can be drafted or whether the agreement should be completely abandoned altogether.
5. Legal proceedings may ensue to assess the situation and determine whether the contract is void or not.
Void Contract – Example
Bob enters into an agreement with a music label to split royalties from his new album 50/50. However, at the time of this agreement, Bob’s been drinking at the bar for several hours and is heavily inebriated. Due to the fact that Bob was incompetent at the time the contract was agreed to, it is a void contract.
Voidable Contract – Example
Assume a situation similar to the previous example. This time, Bob is a minor and hasn’t had anything to drink. Since Bob is a minor, the contract is instantly voidable. However, because he wasn’t incompetent, the contract is valid. Bob will have the option of keeping or dropping out of the contract at any time.
Other Considerations
While a contract may not be void when it is created, it is possible for other factors to render it void. New laws may come into effect that cause a contract to become void immediately. Also, information that was previously unknown to parties engaging in the contract can also make the contract void. As all contracts are unique, it is often difficult to judge their validity.
Related Readings
Thank you for reading CFI’s guide to Void Contract. To keep advancing your career, the additional CFI resources below will be useful:
contract are null, a void contract cannot be ratified. In a legal sense, a void contract is treated as if it was never created and becomes unenforceable in court.
A void contract is unenforceable, no matter the situation. A voidable contract can only be annulled if the court sees legal reasons to do so. A void contract is invalid even if none of the parties revoke or cancel it. A voidable contract remains valid until one of the parties initiates the cancellation process.
A void agreement is not punishable under law whereas an illegal agreement is considered as an offence, hence the parties to it are punishable and penalised under Indian Penal Code (IPC). Collateral agreements of a void agreement may or may not be void i.e. they may be valid also.
In these situations, contracts have no possibility of being amended and are immediately void. This means the court will cancel the contract entirely releasing all parties from their obligations. As the contract is said to have never existed, you will not be able to recover any compensation even if a party is in breach.
Enforcement: Void contracts cannot be enforced by any party or law because they are fundamentally flawed. But voidable contracts can be enforced, especially if the party with the right to reject the contract decides not to do so and proceeds with the agreement.
A voidable contract is a formal agreement between two parties that may be rendered unenforceable for any number of legal reasons, which may include: Failure by one or both parties to disclose a material fact. A mistake, misrepresentation, or fraud. Undue influence or duress.
However, at the time of this agreement, Bob's been drinking at the bar for several hours and is heavily inebriated. Due to the fact that Bob was incompetent at the time the contract was agreed to, it is a void contract.
While a void contract is usually considered not enforceable at its inception, a contract may be voidable if the contract's circ*mstances are questionable. Examples of voidable contracts include when one party is allowed to cancel the contract because of the other party's illegal or unfair (voidable) actions.
Consequences of a void contract: No binding obligations, no legal remedies, financial losses, and potential reputation damage for involved parties. Avoiding void contracts: Comply with legal requirements, clearly define terms and conditions, consult legal professionals, and review key contract elements.
A void agreement is one which cannot be enforced by law. Sometimes an agreement which is enforceable by law, i.e., a contract, can become void. Void agreements are different from voidable contracts, which are contracts that may be nullified.
So long as the contract is void as against public policy and remains executory or partly incomplete, either party may sue to set it aside and recover all he has expended or conveyed in part performance thereof.
a contract ceases to exist if a suspensive condition is not fulfilled. The agreement cannot be revived and as such the addendum was of no force or effect in either reviving the sale agreement or constituting a new sale agreement.
A null contract is one that was never valid from the beginning, while a void contract becomes invalid due to certain circ*mstances, such as illegal provisions or the incapacity of one party. Consequently, such contracts are not legally binding and cannot be enforced.
A contract is unenforceable when there is evidence of lack of capacity, coercion, undue influence, misrepresentation/nondisclosure, unconscionability, violation of public policy, or impossibility.
The general rule is that where a mistake has been made by the parties, at common law the contract may be deemed void, as if the contract had never existed. Equity takes a more flexible approach in that contracts containing certain mistakes may be treated as voidable, where either party can terminate the contract.
In law, void means of no legal effect. An action, document, or transaction which is void is of no legal effect whatsoever: an absolute nullity—the law treats it as if it had never existed or happened.
void·able ˈvȯi-də-bəl. : capable of being voided. specifically : subject to being declared void when one party is wronged by the other. a voidable contract. voidability.
Unlike a void contract which cannot be enforced, the coerced party can choose to perform an otherwise voidable contract. An unenforceable contract is generally a valid contract but is not enforced because of public policy or law.
Address: Suite 769 2454 Marsha Coves, Debbieton, MS 95002
Phone: +813077629322
Job: Real-Estate Executive
Hobby: Archery, Metal detecting, Kitesurfing, Genealogy, Kitesurfing, Calligraphy, Roller skating
Introduction: My name is Gov. Deandrea McKenzie, I am a spotless, clean, glamorous, sparkling, adventurous, nice, brainy person who loves writing and wants to share my knowledge and understanding with you.
We notice you're using an ad blocker
Without advertising income, we can't keep making this site awesome for you.
