Summary
- A void contract creates no rights or obligations and cannot be enforced, though you may still recover money or property or bring claims for fraud or negligence.
- A voidable contract stays binding until you cancel it, so you must act promptly or lose the right through delay or affirmation.
- Contracts entered under duress or undue influence are voidable, and if cancellation is no longer possible a court may award compensation instead.
- This guide explains void and voidable contracts for business owners in the United Kingdom.
- LegalVision’s business lawyers specialise in advising clients on contract disputes.
Tips for businesses
Check whether your contract is void or voidable before acting. If it is voidable, decide quickly whether to cancel, because delay can cost you the right. Keep records of what each party transferred, so you can recover money or property if the contract unwinds.
A void contract has no legal effect from the start, so neither party can enforce it. A voidable contract is valid and binding until the wronged party chooses to cancel it. The difference decides what you can recover. Under English law, contracts are usually void for illegality, lack of capacity or fundamental uncertainty, and voidable for misrepresentation, duress or undue influence. Rescission lets a wronged party unwind a voidable contract, but it can be lost through delay, affirmation or third party rights. Even where a contract is void or illegal, you may still recover money or property, or claim compensation, depending on the circumstances. This article will explain the legal implications of void and voidable contracts and outline the remedies available.
Understanding Void Contracts
A void contract creates no rights or obligations whatsoever. You cannot enforce it through legal action. This means you cannot claim damages for breach of its terms. More significantly, a void contract cannot transfer ownership of property, even to an innocent third party.
However, you are not necessarily left without recourse. Your dealings under the void contract may give rise to other remedies. For example, you might have claims for negligence or fraud. Alternatively, you may be able to recover money or property you transferred under the void agreement.
Understanding Voidable Contracts
A voidable contract presents different implications. Unlike a void contract, it is initially valid and binding. This means it creates enforceable rights and obligations. However, if you are the wronged party, you can cancel it.
You can either rescind the agreement or continue with it once you discover the grounds for cancellation. This choice must be made within a reasonable time. You can lose the right to cancel through delay. Once you make your choice, you cannot change your mind.
Cancelling works retrospectively. This means the rights and obligations are treated as if they never existed. Both parties must return the benefits they have received. However, you might lose the right to cancel in certain circumstances, such as if it is impossible to restore both parties to their original positions, if too much time passes, or if cancellation would interfere with third party rights.
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Common Grounds that Make A Contract Void or Voidable
Knowing why a contract fails helps you judge your position. A contract is usually void where its purpose is illegal, where a party lacked capacity or authority to agree, or where the terms are too uncertain to enforce. A shared fundamental mistake about the subject matter can also make it void.
A contract is usually voidable where one party was misled or pressured into it. Misrepresentation is the most common ground. If the other side made a false statement of fact that led you to sign, you may be able to cancel the contract and claim damages under the Misrepresentation Act 1967. Duress and undue influence work in a similar way.
Voidable contracts stay alive until you act, so identifying the ground early protects your right to cancel. A mistake about the subject matter is one example worth checking early.
Remedies When Illegality Affects Your Contract
The illegality defence can arise even if neither party raises it. This is because it stems from public policy and the courts’ duty to uphold the law. The courts have established a more flexible approach for dealing with illegality. They now balance competing interests rather than automatically rejecting all claims.
Courts now consider three key factors. First, they examine the underlying purpose of the law that has been broken and whether denying your claim would help that purpose. Second, they consider any other public policy that might be undermined by denying your claim. Third, they assess whether denying your claim would be a fair response to the illegality.
Your remedies will depend on this balancing exercise.
Remedies for Duress and Undue Influence
If you entered into a contract under duress or undue influence, the contract is voidable. This means you have specific remedies available. You can choose to continue with the contract or cancel it. However, you must ensure there are no legal bars to cancellation.
Duress includes not only threats of violence but also economic duress. You must prove three elements. First, you faced improper pressure with no commercial justification. Second, this pressure caused you to enter the contract. Third, you had no reasonable alternative.
Undue influence arises when someone abuses a relationship of trust and confidence to pressure you into a contract. In certain relationships, undue influence is assumed. For example, this applies to doctor and patient relationships or solicitor and client relationships. The law recognises that these relationships involve inherent power imbalances.
Key Takeaways
Understanding the distinction between void and voidable contracts is crucial for protecting your business interests. A void contract has no legal effect and cannot be enforced, though you may still have other remedies available such as claims for fraud or negligence. A voidable contract remains binding until you choose to cancel it, but you must act promptly to preserve your rights. If you entered a contract under duress or undue influence, you can cancel it if you act quickly, or claim compensation if cancellation is unavailable.
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Frequently Asked Questions
What is the difference between a void and a voidable contract?
A void contract has no legal effect and cannot be enforced by either party. A voidable contract is valid and binding until the wronged party chooses to rescind it. Until rescinded, a voidable contract continues to create enforceable rights and obligations.
Can a third party keep their rights under a voidable contract?
Yes. If a voidable contract is not rescinded, a third party can continue to enjoy rights gained under it. With a void contract, third parties gain no legal rights, because the contract is treated as if it never existed.
What counts as economic duress?
Economic duress is illegitimate commercial pressure that leaves you no reasonable choice but to agree. You must show the pressure was improper, that it caused you to enter the contract, and that you had no practical alternative.
What happens to money or property paid under a void contract?
If money or property changed hands under a void contract, the general principle is that both parties should be returned to their pre-contractual positions. That usually means returning what was transferred, though exceptions can apply depending on the circumstances.
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