Void Contract: When Agreements Have No Legal Effect

Key Takeaways

• A void contract is invalid from the start and unenforceable by law.
• Contracts can be void due to illegality, impossibility, lack of capacity, or violations of public policy.
• Void and voidable contracts differ in enforceability—void contracts are never legally binding, while voidable contracts can be enforced unless rescinded.
• Certain formalities like mutual consent, capacity, and legality are essential for a contract to be valid.
• Courts may nullify contracts or specific clauses when fundamental legal issues exist.
• Common types of void contracts include those involving illegal activity or created without contractual capacity.
• Contracts made under duress, misrepresentation, or with an incompetent party can often be deemed void.

A void contract is one that is not legally enforceable. Certain circumstances render some contracts immediately void based on some aspect of the law. With void contracts, both parties are released from the contractual obligations set forth in the original agreement. 

Void contracts often center around illegal activities, are patently unfair, or violate public policy. Other void contract situations might involve someone who is not competent to enter into a legal contract or contain terms that are impossible to complete. You might be able to salvage contracts that are void in only one or two parts by a process known as severance.

When Does a Contract Become Void?

After declaring a contract void, it will no longer be valid and cannot be enforced under federal or state laws. A contract can become void when: 

• It is unfairly one-sided.
• It goes against public policy.
• Its subject matter is illegal.
• It is impossible to perform.
• It unfairly restricts one side's actions (such as the right to work).
• One of the parties is not legally competent to enter into a binding contract.

If someone is permanently disabled and deemed incapable of understanding a contract or its implications when entering into the agreement, that agreement can be declared void. If the person is a minor but has a parent's or legal guardian's consent, then the contract might be enforceable. In situations where there is a law change after an agreement was made but before the contract was completed, the contract can be deemed void if the agreed-upon activities are now illegal.

Some issues essentially make the contract “void on its face.” This means the contract is void as is and cannot be changed or amended to make it enforceable. In these cases, the court will likely cancel it in its entirety.

Common Legal Grounds for Void Contracts

A void contract lacks legal enforceability due to foundational flaws that invalidate it from inception. Below are common legal grounds under which a contract may be declared void:

• Illegality: Contracts involving unlawful activities (e.g., drug trafficking, fraud, or prostitution) are void because courts cannot enforce illegal agreements.
• Lack of Capacity: If a party is a minor (without legal guardian consent), mentally incapacitated, or under the influence of substances, the agreement may be void.
• Mutual Mistake: When both parties misunderstand a material fact, the contract might be void due to the absence of true mutual consent.
• Violation of Public Policy: Contracts that attempt to restrict basic rights (e.g., freedom to marry or work) may be invalidated.
• Lack of Consideration: A contract must include a lawful exchange of value. Without this, it is generally void.
• Impossibility or Futility: If it's objectively impossible to perform the contract (e.g., due to the destruction of the subject matter), it can be rendered void.

Steps to Void a Contract

In a situation where you suspect a contract should be voided, there are certain steps you can take:

• Review the contract to determine which elements or sections might render it invalid.
• Decide on the main reason the contract is void (e.g., it is impossible to perform or violates public policy).
• Start by collecting documents and other information that support your position that the contract is void.
• Decide whether a new contract should be created or whether you wish to abandon the contract entirely.

Every state has different laws regarding contracts and business matters. This is because state laws might differ in how they regulate commerce and commercial transactions. If you choose to have a contract declared void, neither party will benefit in any way from the exchange that was to take place.

Legal Tools and Remedies for Voiding a Contract

In addition to declaring a contract void, parties may pursue specific remedies to address the consequences:

• Rescission: A legal process that nullifies the contract, restoring parties to their original positions.
• Declaratory Judgment: A court may issue a judgment stating that the contract is void and outlining legal consequences.
• Restitution: When money or property was exchanged under a void contract, the court may order the return of those assets.
• Injunctions: Courts may issue orders to prevent further actions under the void contract, especially in cases of potential harm.

It's advisable to seek legal guidance when pursuing any of these remedies, as nuances in contract law vary by jurisdiction.

Differences Between Void and Voidable Contracts

Void and voidable are often used interchangeably, but they cover different issues when it comes to contracts. Voidable contracts are legally valid contracts and can be enforced in some cases. Typically, only one party is bound to the terms in a voidable contract situation. The other party can cancel the contract, which makes it void.

A void contract is unenforceable from the start. The law treats it as though the contract never existed. The biggest difference is a void contract cannot be legally executed under the law whereas a voidable contract can. The “unbound” party, however, has the right to request it be voided before it's fulfilled.

Key Characteristics of Void vs. Voidable Contracts

To clearly distinguish between void and voidable contracts, consider the following comparison:

Understanding this difference is essential for business transactions, especially when navigating disputes or breach of contract claims.

Examples of Void Contracts

Void contracts typically involve illegal acts such as:

• Prostitution
• Committing a crime
• Gambling

Take, for example, a contract for an illegal drug deal between a drug supplier and a local dealer. This contract would be void because it involves illegal goods. It's unenforceable from the start because it doesn't serve a legal purpose. Another example is a contract that restricts certain activities, such as who a person can marry or one's right to work for a living.

A voidable contract might be one in which someone was tricked into entering the contract or one party was incapacitated (e.g., under the influence of alcohol or drugs) at the time.

Consult with a lawyer before entering into a verbal or written contract. He or she can help draft a legally binding contract, so you don't have to worry about it being void or voidable.

Risks of Entering into a Void Contract

Engaging in a void contract can have significant consequences:

• No Legal Recourse: Since void contracts are unenforceable, neither party can seek legal remedies for breach.
• Potential Liability: Parties may still face legal consequences for attempting to enforce an illegal or unethical agreement.
• Loss of Resources: Time and money spent on fulfilling the terms of a void contract cannot be recovered if no legal restitution is granted.
• Reputational Damage: Associating with void contracts—especially those involving unlawful activity—can harm a person’s or business’s credibility.

To avoid these risks, it's critical to verify the legality, terms, and parties’ capacities before signing any agreement.

Frequently Asked Questions

1. What makes a contract void instead of voidable?
   A void contract is invalid from the start due to illegality or lack of essential elements. A voidable contract is valid but can be canceled by one party.
2. Can a void contract ever be enforced?
   No. A void contract cannot be enforced under any circumstance because it lacks legal validity from the outset.
3. Who decides if a contract is void?
   While parties may agree a contract is void, often a court of law determines void status in cases of dispute.
4. Is a verbal contract ever considered void?
   It depends on the jurisdiction and type of agreement. Some verbal contracts are valid, while others, like real estate contracts, require written form.
5. What should I do if I suspect my contract is void?
   Consult with an attorney to evaluate the terms and legality. You may need to pursue rescission or other remedies through legal channels.

If you need help with a void contract, you can post your legal need on UpCounsel's marketplace. UpCounsel only accepts the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.