Contracts play a crucial role in business transactions and legal agreements. They are essential for ensuring that all parties involved understand their rights, obligations, and responsibilities towards each other. However, not all contracts are considered valid under the law. Some contracts may be void or voidable, which can have significant implications on their enforcability. In this post we will focus the difference between void and voidable contracts in real estate.

What is a Voidable Contract? 

A voidable contract is a legal agreement between two or more parties that may be cancelled, annulled or voided at the option of one party. This means that although the contract is initially valid and legally binding, certain circumstances exist which allow one party to revoke or terminate the contract.

Voidable contracts are different from void contracts, which are considered to have never been valid in the first place. Void contracts do not create any legal rights or obligations for parties involved, while voidable contracts are considered valid until they are cancelled or voided.

What are the reasons of a Voidable Contracts? 

Mistake: A voidable contract may be cancelled if both parties entered into it due to a mistake, either mutual or unilateral. Mutual mistake occurs when both parties were mistaken about a material fact of the contract and would not have entered into the agreement had they known the truth. Unilateral mistake, on the other hand, only involves one party being mistaken about a material fact and the other party taking advantage of that mistake. 

Fraud: If a contract was entered into based on fraudulent misrepresentation or concealment, it can be declared voidable. This means that one party intentionally misled the other in order to get them to enter into the contract. In such cases, the innocent party has the right to rescind or cancel the contract.

Duress or Undue Influence: Contracts entered into under duress or undue influence are considered voidable. Duress refers to a situation where one party is forced to enter into the contract due to physical threats, while undue influence occurs when one party takes advantage of their position of power over the other and coerces them into entering into the contract.

Incapacity: If one or more parties are legally incapacitated at the time of entering into a contract, it can be declared voidable. This includes situations where the party is a minor, mentally incompetent, or under the influence of drugs or alcohol.

Illegal or Prohibited Purpose: A contract that is entered into for an illegal purpose or contravenes public policy may be considered voidable. This means that the contract is not legally binding and the parties will not be able to enforce it in a court of law.

Lack of Consideration: A voidable contract may also arise if there is no consideration involved, or if there is a lack of valuable exchange between the parties. Consideration refers to something of value that each party gives up in order to enter into the contract.

Misrepresentation: Similar to fraud, a contract can be declared voidable if one party was induced to enter into it based on a misrepresentation made by the other party. This could include false statements of fact, failing to disclose important information, or making promises that cannot be fulfilled.

What is the Example of Voidable Contract? 

 Person A signs a contract to buy a car from Person B. However, after signing the contract, Person A discovers that the car has been involved in a serious accident and is not worth the price stated in the contract. In this case, Person A can claim the contract as voidable due to the false representation made by Person B about the car’s condition.

What is Void Contract?

A void contract real estate is a legally binding agreement that has no legal effect. It is considered null and void, meaning that it has no legal force or validity from the beginning. This type of contract cannot be enforced by either party and is treated as if it never existed.

What are the Reasons of a Void Contract?

There are various reasons why a contract may be considered void, such as:

Lack of Capacity: A void contract may occur when one or both parties do not have the legal capacity to enter into a contract. This could be due to factors like being a minor, mentally incapacitated, or under the influence of drugs or alcohol.

Illegality: A contract that requires any party to engage in illegal activities is considered void. For example, a contract for drug trafficking or prostitution would be void.

Mistake: If both parties have a mutual mistake about the terms of the contract, it may be considered void. This could happen if there is a misunderstanding or miscommunication regarding the details of the agreement.

Fraud: A contract entered into through fraud, deception, or misrepresentation is considered void. This means that one party deliberately misled the other in order to obtain their consent.

Duress: A contract may also be void if one party was forced or coerced into entering into the agreement. This could involve threats, physical violence, or any other form of intimidation.

Public Policy: Any contract that goes against public policy is deemed void. This includes contracts that promote illegal activities, harm the public interest, or restrict freedom of trade.

Unconscionability: A void contract may also be based on unconscionability, which means that one party has taken advantage of the other’s vulnerability or lack of bargaining power in an unfair manner.

What is the Example of Void Contract?

A void contract example is one that involves the sale of stolen goods. Let’s say Person A sells Person B a car, but fails to disclose that the ownership. Later Person B discovers that the car was stolen, and they have no legal right to it. In this scenario, the contract between Person A and B is considered void because it involves an illegal activity.

Person B cannot enforce the contract and demand their money back, as it was obtained through illegal means. 

Another example of a void contract is when an individual signs a contract while under the influence of drugs or alcohol. In this case, they may not have had the mental capacity to fully understand and consent to the terms of the agreement. As a result, the contract would be void.

A contract that restricts someone’s freedom of trade or goes against public policy would also be considered void. For instance, if an employer makes their employees sign a contract that prohibits them from working for competitors after leaving the company, this contract may be deemed void as it goes against the employee’s right to freely choose where they work.

What is the difference between Void and Voidable Contracts?

A void contract is considered invalid from the beginning, while a voidable contract is initially valid but can be declared void by one of the parties.

A void contract cannot be enforced by either party, whereas a voidable contract can potentially be enforced until it is declared void.

In a void contract, there is no legal obligation for either party to fulfill their duties, but in a voidable contract, the party who declares it void may be entitled to certain remedies.

A void contract is considered null and void ab initio (from the beginning), while a voidable contract becomes null and void only after it is declared as such by one of the parties.

Void contracts are typically due to fundamental errors or illegalities, whereas voidable contracts may be due to reasons such as misrepresentation, coercion, or mistake.

A void contract cannot be ratified, meaning that it cannot become valid through the actions of either party. A voidable contract, on the other hand, can potentially be validated if both parties agree to continue with the agreement after it has been declared void.  

What Happens When a Contract is Declared Void or Voidable?

When a contract is declared void, it is essentially treated as if it never existed. This means that both parties are relieved of any obligations and may be entitled to restitution for any losses incurred.

In the case of a voidable contract, the party who declares it void may have the option to either terminate the contract or affirm it. If the contract is terminated, both parties are released from their obligations and any consideration exchanged must be returned. If the contract is affirmed, both parties can continue with the agreement as originally intended.

If a voidable contract is not declared void within a certain time frame, it becomes valid and enforceable by law. Therefore, it is important for parties to understand their rights and take appropriate action if they believe a contract may be voidable. 

Frequently Asked Questions

Q: Can a void contract be ratified?

A: No, a void contract cannot be ratified as it is considered null and void from the beginning.

Q: How can one party declare a contract as voidable?

A: One party can declare a contract voidable by providing evidence of misrepresentation, coercion, mistake, or other grounds for declaring the contract as such.

Q: What happens to any consideration exchanged in a void contract?

A: In a void contract, any consideration exchanged must be returned to the parties as if the contract 

Q: Can a minor enter into a valid contract?

 A: Generally, minors do not have the legal capacity to enter into a contract. However, there are some exceptions where they may be able to make binding agreements, such as for necessities like food and shelter.

Q: Is a verbal agreement considered void or voidable?

A: A verbal agreement can be considered both void and voidable, depending on the circumstances and grounds for declaring it as such. It is always recommended to have a written contract to avoid any confusion or misunderstandings.  

Conclusion

In summary, contracts play a crucial role in our daily lives and are legally binding agreements that should be taken seriously. It is important to understand the difference between void and voidable contracts to ensure that any agreement entered into is enforceable and protects the interests of all parties involved.

Void contracts real estate are considered invalid from the beginning and have no legal effect. This may be due to a lack of essential elements, such as capacity or legality. On the other hand, voidable contracts are initially valid but can be rendered invalid if one party chooses to exercise their right to rescind or cancel the contract due to factors such as coercion, fraud, or misrepresentation.