Even if you have signed a contract, it is possible that you and the other party do not fully agree on what you have signed. There may be circumstances that affected the formation of the contract, such as misrepresentation or duress, and as a result, you may be able to get out of the contract. This article will explain the differences between void and voidable contracts, along with important legal considerations.
What is the Difference Between a Void and Voidable Contract?
You may have heard of ‘void’ and ‘voidable’. Although they seem the same, there are differences between void and voidable contracts.
Void
A void contract is one that neither party can enforce from the moment it is formed. In other words, a court will treat it as though the parties never created it. Neither party can hold the other to their obligations under a void contract.
Voidable
On the other hand, a voidable contract means that there are factors that may entitle one party to end the contract. The key factors are:
- mistake;
- misrepresentation of facts
- duress; or
- undue influence.
However, unlike a void contract, you can still enforce a voidable contract. At the point a voidable instance arises, a party may elect to render the contract voidable. Until then, the contract remains in place and is enforceable.
Voidable Contracts: Factors
Mistake
There are instances when parties can make mistakes when entering into a contract. Mistakes are made when there is a misunderstanding that is not caused by the other party. The mistake may be:
- common (when both parties are mistaken about the same aspect of the contract) for example, when a party is selling art to the other but both are mistaken about the authenticity of the art;
- mutual (when both parties are mistaken but about different aspects of the contract); for example, when the party selling the art is mistaken about its authenticity and the party buying the art is mistaken about the size of the art they are purchasing; or
- unilateral (when one of the parties is mistaken about one aspect of the contract but the other party is not) for example, when only the party selling the art is aware that it is not real.
The remedy available is rescission which puts you and the other party back to the position that you were in before you entered into the contract.
Misrepresentation of Facts
Misrepresentation occurs when the other party persuades you to enter into a contract based on something they said or represented that is untrue. For example, if the other party told you that a set of speakers were brand new but they were actually five years old, this is a misrepresentation.
This misrepresentation can be intentional or unintentional. If one party intentionally or recklessly makes the misrepresentation, it is called fraudulent misrepresentation. If it is unintentional, it is considered innocent misrepresentation. The remedies available may vary, but the contract is voidable because it does not represent the parties’ true agreement. Consumer law also deals with misleading and deceptive conduct and provides other remedies like compensation.
Lack of Capacity
There is an assumption that all parties entering into a contract have the capacity to do so. However, it may be the case that one or either party to the contract did not entirely understand the nature and effect of the contract, as a result of their lack of capacity. This may be because they are underage or have a mental disorder preventing them from having the right capacity.
Uncertainty
The contract may use language uncertain about each party’s contractual obligations. An example of this is an agreement to agree which creates uncertainty about each party’s obligations or the next steps.
Duress and Undue Influence
The crucial aspect of duress and undue influence is that you have not genuinely consented to the contract. Duress and undue influence occur when the other party wants to enforce the contract but they have illegally obtained consent from you, either due to:
- a threat; or
- exerting influence on you that meant that you could not make an independent decision.
When Would You Want to Void a Contract?
Generally, you would want to void a contract if it does not reflect the true agreement between you and the other party for any of the abovementioned factors.
However, if you have a void contract, it is important to keep in mind that you have no choice but to void it. It is simply not enforceable even if you want to keep the contract going. On the other hand, if you have a voidable contract, you can choose whether to keep the contract going or not.
If you can be restored to your position before the contract, then you may choose to void the contract. However, it is generally rare for a court to declare that a contract is void from the beginning, mainly because it is often impossible to restore you to your previous position.
The courts may determine that instead of the entire contract being voided, only specific clauses are void. This can be the case, for example, where certain clauses in an agreement are unfair contract terms. A court may refuse to hold one party to the terms of an unfair provision. However, the rest of the contract will continue to bind the parties to the extent possible.
Rescission
Rescission is the main remedy for a void contract. It involves reversing the contract so that each party is restored to its original position. If you have a voidable contract, rescission doesn’t happen automatically. You must choose to do so. The main consideration with this remedy is whether it is possible to restore you to your positions before the contract. This may be impossible because:
- goods may have changed hands; or
- there may have been third parties involved who did not sign the contract.
If it is not possible, you may seek other remedies depending on the reason for voiding the contract. For example, the Australian Consumer Law enables terms within contracts to be declared void if they are unfair and in some instances, compensation may be available.
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Key Takeaways
If you are preparing to enter into a contract or would like to end a contract, it is important to be aware of the difference between a void and voidable contract. You may wish to void a contract if it does not represent a true agreement. This may arise where the following a present:
- mistake;
- Misrepresentation;
- Lack of capacity
- uncertainty
- duress; and
- unconscionable conduct.
If you need a lawyer to review your contract or assess your options to end your contract, you can contact LegalVision’s contract lawyers on 1300 544 755 or fill out the form on this page.
If you need help with clauses conferring benefits on third parties, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1800 532 904 or visit our membership page.
Frequently Asked Questions
A void contract is one that is not enforceable. Typically, void contracts refer to contracts that are legally illegitimate from the moment the parties make the agreement. Confusingly, however, a previously enforceable contract may become void if certain factors entitles one of the parties to terminate the contract. These factors are referred to as voidable events.
A voidable contract is one that is legally enforceable but under which certain conditions have arisen that entitle one party to terminate the agreement. However, until this party elects to do so, the contract remains enforceable.
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