Distinction explained between Void, Voidable and Void Ab Initio contracts
Posted: 09 Mar 2022
The Federal Law, Number 5 of 1985 on the Civil Transactions Law of the United Arab Emirates, defines the contract in article 125 as the meeting of an offer by one of the parties with the acceptance made by the other party in such a way as to produce their consequences on the object of the agreement and result in a binding obligation on each party in consideration of the responsibility of the other party. We can classify the contract as a void contract (1), voidable contract (2), and void AB Initio contract (3)
1. Void contract:
The word “void” means a nullity; then, a void contract is an agreement that is not legally executable, starting from the time it was created. Some of the causes of voids contracts are as follows:– Insertion of an illegal object or consideration, such as an illegal substance or anything else causing the break of the law.– Incompetence, for example, being incapacitated to agree on a contract.– Impossibility of performance: when any aspect of the agreement becomes impossible to carry out by the parties. An example of a void contract is two business companies that agreed on the wine trade in 2010. This contract was valid at the said time; nevertheless, in 2011, the government created a law that banned such trade, then the contract became void thereby.
There was a case law David Taylor & Son vs. Barnett Trading Co (1953), Barnett Trading agreed to sell David Taylor Irish steak for delivery between April-July for a specific price. When the agreement was established, an order was in force, avoiding the buying or selling of meat over a specific price. Barnett trading did not make the delivery and Mr. Taylor claimed damages; the Court of Appeal declared that the agreement had been illegal at its creation due to the provision of set prices that surpassed the legal limits and consequently set aside the award as it was based on an illicit contract.
2. Voidable contract:
A voidable contract is a formal contract between the parties that may be provided unenforceable for legal reasons, such as:
- Failure by the parties to reveal a material element
- A fraud, mistake, or misrepresentation
- Duress or undue influence
- Legal incapacity of the parties to enter to the agreement
- Terms that are unacceptable
- An infringement of the agreement
This type of contract is initially considered legal and enforceable but can be rejected by one party if the agreement is revealed to have defects. An illustration of a voidable contract is when the consent of the promise has been taken through coercion.
Case law was Bisset vs. Wilkinson (1927) AC 177. In May 1919 (New Zealand) made a contract with Mr. Bisset to sell two blocks of farmland (1.42 km2) for £ 13.620. Mr. Wilkinson said to Mr. Bisset that “with a six-horse team, the farm would carry 2.000 sheep,” but after two (2) years, Mr. Bisset realized that the land could not sustenance 2000 sheep, and he took action for misrepresentation to cancel the agreement and get his money back. In this case, the Privy Council considered that the buyer could not back out of the contract as a misrepresentation because Mr. Wilkinson only gave his opinion on the land. Another case is Ningawwa vs. Byrappa Shiddappa Hireknarbar, a husband. He took advantage of his wife to make her sign a document that he requested had the documents of two lands but truly contained the documents of four lands. The Court apprehended that the act was done with a purpose to deceive and would then come under the horizon of fraud, then it was considered a voidable contract. To establish a voidable contract, the steps to follow are:
- Determine which components of the agreement may render it void
- Identify precisely which laws and reasons concerning the agreement being void
- Confirm all available evidence relating to the contract is collected
- Determine whether a new agreement can be enlisted
- Legal proceedings may follow to evaluate the situation and determine whether the agreement is void or not.
3. Void ab initio contract:
Void AB Initio means “void from the beginning” a void AB Initio contract was void as soon as it was formed. This type of contract can never be void because it was never a lawful contract, to begin with. Where a Court declares an act to be void ab initio, the parties are returned to their respective places at the ab initio occasion, the agreement basically never occurred and therefore had no obligatory power over any parties to the contract. An example of a void AB Initio agreement is the contract with a minor since the minor is an incompetent party to the contract.
Case law is Radhey Shyam Gupta vs. UP State Agro Industrial Corporation. Mr. Radhey was working as Senior Account from 27/07/1970 in UP State Agro-Industrial. He was posted at Faizabad as branch manager on 3/10/1975. While he was working there, he received a letter dated 12/01/1976 from the managing director on 15/01/1976 declaring that Mr. Jai Chandra complained that Mr. Radhey had dishonestly taken RS. 2000 from him. Mr. Radley denied the allegation and submitted his clarification on 22/01/1976. On 23/01/1976, an order of termination was passed stating that Mr. Radhey had been appointed as branch manager by order dated 17/07/1973 and condition number 3 of the appointment order provided that the services of Mr. Radhey could be finished at any time after giving one month’s notice. Mr. Radhey brought his case to the administrative tribunal because he considered that the termination order was illegal. The Court held that the order is declared as void ab initio, which means that the order never occurred. Mr. Radhey must deem to continue in service. In conclusion, a void agreement is considered null, while a voidable agreement is legal until one or more parties may agree to leave it at any time. On the other hand, the differences between voidable and void ab initio are that the first one includes defects that are required to invalidate the contract terms, but a contract that is void ab initio is seen as though it never occurred.
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