In Short
- Contracts can be void or voidable based on factors like mistake, misrepresentation, duress, or undue influence.
- A void contract is unenforceable from the start, while a voidable contract can be ended by one party.
- Rescission, which restores parties to their original positions, is a common remedy when voiding a contract.
Tips for Businesses
Ensure your contracts accurately reflect your agreements. If you entered a contract due to mistake, misrepresentation, or under pressure, legal remedies may be available. Consulting a lawyer can help determine if a contract is void or voidable.
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 affect the formation of a valid contract, such as misrepresentation or duress, and as a result, you may be able to get out of the contract. This article will explain your rights and how you can void a contract, especially when it becomes an unenforceable contract due to certain factors.
What is the Difference Between a Void Contract and a Voidable Contract?
You may have heard of ‘void’ and ‘voidable’. Although they seem the same, they have two different legal meanings.
Void
A void contract is one that neither party can enforce from the moment they form it. In other words, a court treats it as if the parties never created it and cannot enforce it.
Voidable
On the other hand, a voidable contract is a valid and enforceable contract unless one of the parties takes steps to have it declared ‘void.’ The key factors are:
- mistake;
- misrepresentation of facts;
- duress; or
- undue influence.
However, unlike a void contract, you can still enforce a voidable contract. The decision to void such contracts is often due to legal or mental capacity concerns.
The Reasons to Void a Contract
| Reason | Explanation |
| Mistake | There are instances when parties can make mistakes when entering into a contract. Mistakes are made when there is a misunderstanding that the other party does not cause. The mistake may be: + common (when both parties are mistaken about the same aspect of the contract); + mutual (when both parties are mistaken but about different aspects of the contract); + or unilateral (when one of the parties is mistaken about one aspect of the contract but the other party is not). The remedy available is rescission, which puts you and the other party back in 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 was brand new but they were five years old, this is a misrepresentation. This misrepresentation can be intentional or unintentional. If it is intentional or made recklessly, 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. |
| 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 were not able to 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 above-mentioned factors. The contract may also be deemed void if it involves illegal activities or violates public policy.
However, if you have a void contract, it is important to remember that you have no choice whether to void the contract or not. It is 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.
Practical Example – Voiding a Contract
Here’s a practical business example of circumstances that could lead to voiding a contract:
ABC Corp. contracted with Supplier Co. to purchase 1,000 units of specialised machinery parts. During negotiations, Supplier Co. represented that they used high-grade stainless steel to make the parts, a critical requirement for ABC’s manufacturing process. However, after receiving the shipment, ABC discovered that Supplier Co. had used a lower-quality alloy, which ABC found unsuitable for their intended use.
In this case, ABC Corp. may try to void the contract because Supplier Co. misrepresented the facts. Supplier Co. materially misrepresented that they had used high-grade stainless steel, which induced ABC to enter into the contract. If ABC can prove that Supplier Co. intentionally or recklessly made this misrepresentation, ABC could claim fraudulent misrepresentation, allowing them to void the contract and potentially seek additional remedies.
Alternatively, if the misrepresentation was unintentional, ABC may still be able to void the contract on the grounds of innocent misrepresentation, provided that the quality of the materials was a crucial aspect of the agreement.
Rescission
Rescission is the primary remedy for a void contract. It involves reversing the contract to restore each party 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 position 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.
Key Takeaways
If you are preparing to enter into a contract or would like to end it, knowing how to void a contract and the difference between a void and voidable contract is important. However, if you want to void a contract because it does not represent a ‘true agreement’, there are different reasons you can do so, including:
- mistake;
- misrepresentation;
- duress; and
- unconscionable conduct.
If you need help assessing your options to end your contract, 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 1300 544 755 or visit our membership page.
Frequently Asked Questions
A void contract has no legal validity or enforceability from when the parties form it, and the court treats it as if the parties never created it. On the other hand, a voidable contract starts off as valid and enforceable, but one party can take steps to declare it void due to factors such as mistake, misrepresentation, duress, or undue influence.
1. Duress and undue influence.
2. Mistake – when there is a misunderstanding between the parties about an aspect of the contract.
3. Misrepresentation of facts.
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