If you deal with businesses regularly, or in general, it is important to understand what a void contract is and how you can avoid one. Void contracts lack the legal elements that make a contract lawfully enforceable. There can be multiple reasons for the same. This article will discuss the reasons, the elements, the types, and all other details.
What Is a Void Contract?
Avoid contract is not lawfully binding; hence, itcannot be enforced. It also means that either of the parties involved in the contract cannot sue the other for violating the contract.
Such contracts can be void for many reasons – the most common ones being one party being forced to sign the contract or any other illegal activities.
Elements of a Void Contract
If all or either of thefollowing elements are present in a contract, it will beconsidered null or void:
- Both parties have not mutually agreed to the terms and conditions of the contract for it to be valid. This means that there should be an offer to do something by one party and acceptance of the offer by the other party.
- There is no consideration in the contract. A consideration is required for a contract to be valid. Consideration means the amount or price paid by the party accepting the offer to the party who offers to do something.
- The terms and conditions laid by both parties are not complete, vague or ambiguous.
- The parties to the contract are incompetent to enter into contracts under the law or do not have the capacity to make informed decisions.
- Both parties are under a mistake regarding an essential fact laid down in the contract.
Different Types of Void Contracts
Depending on the reasons, void contracts can be of multiple types. Here are some:
- Ab initio
Ab initio contracts arevoid from the beginning. This type of contract usually occurs in the case of fraud and duress.
- Unenforceable
This type of contract includesterms and conditions thatcannot be legally enforced. An unenforceable contract usually occurs when the contract includes an invalid clause.
- Voidable
A voidable contractcan be cancelled by either of the parties involved. This type of contract usually occurs as a result of misunderstanding or misinterpretation. Till the contract is cancelled by a party, it will be valid.
- Initially Voidable
An initially voidable contract exists wheneither of the parties is threatened, deceived, or forced into signing it. However, the party can choose to proceed with the contract regardless of the compulsion.
Reasons for Void Contracts
There can bemultiple reasons for a contract to be void. These reasons can be factual or legal. Here are some of them:
- Uncertainty
This is one of the most common causes for a contract to be void. Uncertainty mostly occurs due to the language used by the individual who drafted the contract. This can happen when clauses such as ‘agreement to agree’ are present or when the parties decide to make certain arrangements at a later date.
- Mistake or Misunderstanding
In this case, a common or mutual mistake or misunderstanding is made by both parties regarding an essential fact or subject matter of the contract. This is usually an innocent reason but can make a contract null. Incorrect and hidden information is the most common reason for such void contracts.
- Lacking Capacity
This can occur if either of the parties involved is incapable of entering into a contract. This individual can be a minor or have an unsound mind, making them ineligible to make a decision. For instance, if one of the parties is an infant or minor or has an unsound mind, the contract does not hold any value and is considered void.
- Public Policy
A contract will be void if the clauses or terms of the agreement oppose public policies. An example of this would be when an employer makes their employee sign a contract that forbids them from joining an employee union.
- Unlawful Object
If the contract contains an unlawful object, an object forbidden by law, or involves/implies injury to another person or property, such contract will be void. To illustrate, an unlawful object may be a contact between people to do robbery and share money.
- Restraining Marriage or Trade
A contract restricting the marriage of one person with another person or restraining a person from carrying a trade, business or profession is a void contract.
- Impossible Act
A contract which provides to do an impossible act is void. It will also be void when it becomes impossible to do an act stated in the contract due to the occurrence of an event beyond the control of the party. To illustrate, a painter enters into a contract to give paintings to a person for a certain amount. But, if the painter dies before completing the painting, the contract will be void.
Void Contract Example
As you know by now, there are multiple scenarios and reasons, legal and non-legal, that can result in a contract being void. Here are some examples to clarify the concept:
- Example 1
Suppose, you are going to release your album, and you agreed on a 50-50 profit split with your producer. While signing the contract, you had been drinking at the bar. Considering the circ*mstances, the contract will be void or null as you were under the influence of alcohol while signing the contract.
- Example 2
Another example of a void contract would be if it involves illegal substances. Suppose Party A and Party B are entering into a dealership agreement that involves drugs or narcotic substances. This contract will be null or void as it involves illegal substances; therefore, there will be no legal enforcement.
- Example 3
Suppose you are signing an agreement to sell your car to an individual. You have set a selling price, but the purchasing party wants to bargain. Now, if the buyer threatens to harm you if you do not sell your car at his price, the agreement will be void as there is involvement of force.
Void Contract Section
Section 2 (g) of the Indian Contract Act describes a void contract as a contract not enforceable by law. Simultaneously, Section 2(j) states that a contract becomes void when it ceases to be enforceable by law.
Along with these, Section 20 deals with void contracts if parties mistake the matter or essential facts of a contract.
Also, sections 24, 25, 26, 27, 28, 29, 30, and 56 deal with void agreements.
How to Avoid Void Contracts?
You can avoid drafting or entering into a void contract by keeping in mind the following pointers:
- Abide by Legal Implications
Be aware of the legal implications and make sure you abide by them while drafting a contract. Also, ensure nothing in the said contract opposes public policies.
- Be Clear with Terms and Conditions
Clearly specify the terms, conditions, and obligations of both parties, such as payment terms, subject matter, contract duration, and other relevant details to avoid ambiguities that may result in the contract being void.
- Do Not Involve Illegal Substances and Activity
Ensure that the contract and its terms and conditions do not revolve around illegal substances and activities. This may render a contract to become null.
- Include Essential Elements
There are some essential elements that a valid contract should include, such as offer, consideration, acceptance, and mutual agreement between the parties.
- Mention Contingencies
If any provisions in the contract can lead to breaches, disputes, or unforeseen circ*mstances, include them in the contract. Also, mention what resolution mechanism is applicable in this case.
- Seek Professional Advice
Seek professional guidance while drafting the contract to ensure its enforceability and compliance with laws.
Conclusion
While entering into an agreement with other parties or even drafting one by yourself, you should keep in mind the pointers mentioned in this article. You can avoid void contracts and their consequences by including all the essential elements and carefully assessing them once drafted.
