When it comes to contracts, there are two terms that are often used interchangeably but actually have distinct meanings: Void and voidable contracts. Understanding the difference between the two is essential for anyone engaged in contract negotiations or disputes.
A void contract is a contract that is invalid from the outset, meaning it is not legally binding and cannot be enforced by either party. This type of contract is often referred to as a “nullity” in legal terms. Void contracts are typically invalid due to one or more fundamental flaws, such as illegality or lack of capacity to contract.
For example, a contract that requires one party to perform an illegal act, such as selling drugs, would be considered void and unenforceable. Similarly, a contract entered into by a minor or someone who lacks mental capacity to understand the terms of the agreement would also be void.
On the other hand, a voidable contract is a contract that is initially binding, but one or both parties has the right to cancel or void the agreement due to some defect in the formation or performance of the contract. Voidable contracts are typically considered legally binding until one party takes action to void the contract.
For example, if a party entered into a contract under duress or coercion, they may have the right to void the contract. Similarly, if a party was fraudulently induced into entering the contract, they may have grounds to cancel the agreement.
It`s important to note that voidable contracts are not automatically null and void but instead require one or both parties to take action to void the contract. This is usually done through a legal process, such as a lawsuit or arbitration.
In summary, the main difference between void and voidable contracts is that void contracts are invalid from the outset and cannot be enforced while voidable contracts are initially binding but can be canceled by one or both parties due to some defect in the formation or performance of the contract. Knowing the difference between the two can help you avoid legal disputes and ensure that your contracts are legally binding and enforceable.