Void/voidable contracts Watch

Grandiloquent
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#1
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What is the difference between one and the other in practice? Is it that void contracts mean that contractual damages can't be sought as obligations weren't owed by either party (so whatever happened after the 'contract' took place stays like that) and voidable contracts are capable of rescission (parties are restored to their situation prior to the contract, ie. the claimant gets damages)? Thanks for any replies!
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MelesMeles
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If you have Westlaw access, look at Chitty, paras 1-080, 1-081, and 1-082. They're very short, and give an excellent summary.
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Mullin89
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(Original post by Grandiloquent)
What is the difference between one and the other in practice? Is it that void contracts mean that contractual damages can't be sought as obligations weren't owed by either party (so whatever happened after the 'contract' took place stays like that) and voidable contracts are capable of rescission (parties are restored to their situation prior to the contract, ie. the claimant gets damages)? Thanks for any replies!
Basically a void contract means there was never a contract to begin with therefore no contractual obligations and a voidable contract means that the party may choose to end their contractual obligations at any point.

Its best looked at in relation to mistake and third parties.

If you are conned out of something and the contract is voidable, then until steps are taken to avoid the contract the fraudulent party may legally pass on the title of the goods to a third party, therefore they would not be able to be recovered.

If the same happened and the contract was void then, legally speaking, the original exchange did not take place so the title of the goods cannot be passed on therefore the owner could reclaim them from the third party.

Atleast thats what I seem to remember.
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Grandiloquent
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(Original post by Mullin89)
Basically a void contract means there was never a contract to begin with therefore no contractual obligations and a voidable contract means that the party may choose to end their contractual obligations at any point.

Its best looked at in relation to mistake and third parties.

If you are conned out of something and the contract is voidable, then until steps are taken to avoid the contract the fraudulent party may legally pass on the title of the goods to a third party, therefore they would not be able to be recovered.

If the same happened and the contract was void then, legally speaking, the original exchange did not take place so the title of the goods cannot be passed on therefore the owner could reclaim them from the third party.


Atleast thats what I seem to remember.
If you are right about this, which you probably are since it makes sense... then why is declaring a contract voidable considered as part of equity in common mistake? Doesn't this mean the contract is rescinded and therefore everything goes back to how it was before the contract came into place... How can this have the same effect as declaring a contract void from the very beginning (which is common law practice)? There would be no discussion between equity and the common law then...
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*sparkles*
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If the contract is merely voidable it protects innocent third parties because it means that legal title has in fact passed.
It doesn't go back to how it was before... example: A sells to a rogue, B, who sells to a third party, C. A realises that B has not paid, by which point the rogue has usually disappeared with C's money. A brings a claim against C for recovery of the goods. If the contract is merely voidable, good title has passed and C is the legal owner of the goods.
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Grandiloquent
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(Original post by *sparkles*)
If the contract is merely voidable it protects innocent third parties because it means that legal title has in fact passed.
It doesn't go back to how it was before... example: A sells to a rogue, B, who sells to a third party, C. A realises that B has not paid, by which point the rogue has usually disappeared with C's money. A brings a claim against C for recovery of the goods. If the contract is merely voidable, good title has passed and C is the legal owner of the goods.
Thanks, I agree with what you're saying about innocent third party rights, but I'm pretty sure that in Solle v Butcher, Denning declares it voidable and thus rescission takes place. Correct me if I'm wrong.
I'd rep by the way but I already used my thingy today, not that it would do anything with my repping power.
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*sparkles*
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(Original post by Grandiloquent)
Thanks, I agree with what you're saying about innocent third party rights, but I'm pretty sure that in Solle v Butcher, Denning declares it voidable and thus rescission takes place. Correct me if I'm wrong.
I'd rep by the way but I already used my thingy today, not that it would do anything with my repping power.
oh... is Solle v Butcher not one of those mutual mistake cases where they get the option of setting aside the contract at the point where they are? I might be wrong though, I haven't got the case in front of me and my head is full of constitutional rights this morning!
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jacketpotato
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(Original post by Grandiloquent)
If you are right about this, which you probably are since it makes sense... then why is declaring a contract voidable considered as part of equity in common mistake? Doesn't this mean the contract is rescinded and therefore everything goes back to how it was before the contract came into place... How can this have the same effect as declaring a contract void from the very beginning (which is common law practice)? There would be no discussion between equity and the common law then...
The key point is one that everyone ITT has described but noone has made explicit.

The effect of the two remedies is exactly the same.

However, there are no defences to a property claim based on a void contract: you are saying "its my property, give it back": you are entitled to the property as of right.
By contrast, recission is a discretionary remedy: you are saying to the courts "would you please grant me rescission because its whats fair and just".

The practical importance of this is that there are defences to an equitable action for rescission that are not available to someone who is claiming their property back at law (because title does not pass under a void contract; but it does under a voidable contract until the contract has been rescinded).

The most important defence is that of being a "bona fide purchaser for value". If the property is in the hands of a BFPV, you can't get rescission.
This is why the distinction is important in the mistake cases: if you sell someone a car under a void contract, the car remains your property so you can always get it back. If you sell someone a car under a voidable contract, and he then sells the car onto a BFPV, you can't get the car back from the third party because he is a BFPV - you are just left with a remedy for misrepresentation against the person you contracted with, which will be useless if he has disappeared.
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jacketpotato
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n.b. its also important in the case of bankruptcy. If you sold goods to someone who then becomes bankrupt under a void contract, the goods remain your property so you can get them back. If its a voidable contract, then you are simply in the position of an unsecured creditor and so probably won't get all of your money.
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Grandiloquent
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(Original post by jacketpotato)
The key point is one that everyone ITT has described but noone has made explicit.

The effect of the two remedies is exactly the same.

However, there are no defences to a property claim based on a void contract: you are saying "its my property, give it back": you are entitled to the property as of right.
By contrast, recission is a discretionary remedy: you are saying to the courts "would you please grant me rescission because its whats fair and just".

The practical importance of this is that there are defences to an equitable action for rescission that are not available to someone who is claiming their property back at law (because title does not pass under a void contract; but it does under a voidable contract until the contract has been rescinded).

The most important defence is that of being a "bona fide purchaser for value". If the property is in the hands of a BFPV, you can't get rescission.
This is why the distinction is important in the mistake cases: if you sell someone a car under a void contract, the car remains your property so you can always get it back. If you sell someone a car under a voidable contract, and he then sells the car onto a BFPV, you can't get the car back from the third party because he is a BFPV - you are just left with a remedy for misrepresentation against the person you contracted with, which will be useless if he has disappeared.
Thank you so much! This is exactly the answer I was hoping for, I think I just wasn't asking it properly. Thanks everyone else, contributions appreciated.
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