What Makes a Contract Void in the UK?

As a business that is frequently entering into contracts, it is important that you know the distinction between a legally binding and void contract. A void contract is not legally enforceable. This means neither party can litigate if there is a breach of the agreement. Importantly, a void contract is different from a voidable contract. This article will explain what a void contract is in detail, and some instances when a court may find a contract void. 

What is a Void Contract?

A void contract is not a valid agreement in the eyes of law. In other words, it has no legal effect and the purported contract terms cannot create enforceable obligations. If a contract is declared to be void, it is treated as if it never existed in the first place. 

How is a Void Contract Different from a Voidable Contract?

Importantly, void contracts are different from voidable contracts. If the court declares a contract void, it treats it as if it never existed in the first place. 

However, if a contract is determined to be a voidable contract, either party to the contract has the right to rescind the agreement or to have it set aside by a court. This means that the rights within the contract are not automatically extinguished. Instead, the wronged party can choose whether to continue with the agreement or not.

An important difference between the two is in relation to third party rights. If a contract is void, then third parties under the contract will have no legal rights. In contrast, if you have a voidable contract that is not rescinded, the third party can continue to enjoy their rights as part of the agreement.

What Makes a Contract Void?

Certain circumstances can give rise to a voidable contract. The most common reasons include if the contract:

• was not formed properly, for example, the contract terms are too uncertain to be enforceable;
• was entered into on the basis of a mistake, for example, a mistake as to the subject matter that you were negotiating about;
• is prohibited by statute, for example, a statute that prevents illegal activities or anti-competitive practice;
• was made by someone who did not have the authority to enter into a contract, for example, an agent acting on behalf of their employer who was mistaken as to their authority; or
• causes a restraint of trade; or
• the parties who entered into the contract did not have the capacity, for example, they were limited by their company’s constitution (this is sometimes called an ultra vires agreement).

The presence of any of these reasons will result in a void agreement. You can, however, enter into a new contract with the other party if you wish. This could be a valid contract if it is created properly. For example, if you entered into a contract on the basis of a mistake in subject matter, but you would like to continue the agreement nonetheless, it is a good idea to enter into a separate new legally binding contract.

What Makes a Voidable Contract?

A contract might be voidable in certain circumstances, such as if the contract was entered into:

• while one party was making illegitimate threats to the other party;
• on the basis of an important misrepresentation as to a fact;
• with one person taking advantage of their superior position; 
• with an underage person – usually, this will make the contract voidable until the underage person becomes 18 years old; or
• made with someone with mental or physical capacity, including if they were intoxicated; or
• if the contract is voidable by a statute, for example, the Auctions (Bidding Agreements) Act 1969. 

As mentioned, a voidable contract will give the aggrieved party the right to rescind the contract if they wish. To exercise the right to rescind, the person must tell the other person that they have chosen to rescind the contract, or if the case ends up in court, the person can ask the court to set the contract aside. 

Avoiding Void and Voidable Contracts

To protect your business from problematic contracts:

• do your homework on the other party and contract subject;
• ensure clear, honest communication throughout negotiations;
• get legal advice on important contracts before signing;
• keep thorough records of all agreements and discussions;
• stay up-to-date with relevant laws in your industry;
• avoid using or giving in to high-pressure tactics; and
• consider including safeguard clauses in your contracts.

Key Takeaways

As a business owner, it is important to know the difference between a legally binding and a void contract. A contract is void in certain circumstances. For example, a contract is void if the parties were mistaken as to the subject matter of the contract. This means the agreement has no legal content. In other words, the parties cannot rely on the contract in a court case. 

A voidable contract, on the other hand, arises in different circumstances. This can give the wronged party the right to set the contract aside if they wish.

If you need help determining if your contract is void, 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 0808 196 8584 or visit our membership page.

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