Void Contract Definition and What Happens

What Is a Void Contract?

A void contract is a formal agreement that is effectively illegitimate and unenforceable from the moment it is created. A void contract differs from a voidable contract because, while a void contract is one that was never legally valid to begin with (and will never be enforceable at any future point in time), voidable contracts may be legally enforceable once underlying contractual defects are corrected. At the same time, void contracts and voidable contracts can be nullified for similar reasons.

Understanding Void Contracts

A contract may be deemed void if the agreement is not enforceable as it was originally written. In such instances, void contracts (also referred to as "void agreements"), involve agreements that are either illegal in nature or in violation of fairness or public policy.

Void contracts can occur when one of the involved parties is incapable of fully comprehending the implications of the agreement. For example, a mentally impaired individual or an inebriated person may not be coherent enough to adequately grasp the parameters of the agreement, rendering it void. Furthermore, agreements entered into by minors may be considered void; however, some contracts involving minors that have acquired the consent of a parent or guardian may be enforceable.

Any contract agreement created between two parties for illegal actions is also considered a void contract. For example, a contract between an illegal drug supplier and a drug dealer is unenforceable from the onset due to the illegal nature of the agreed-upon activity.

A contract may also become void if a change in laws or regulations occurs after an agreement was reached but before the contract was fulfilled if the formerly legal activities described within the document are now deemed illegal.

Voidable Contract vs. Void Contract

While a void contract is often considered not executable by design, a contract may be deemed voidable if the agreement is actionable, but the circumstances surrounding the agreement are questionable in nature. This includes agreements made where one party withheld information or intentionally provided inaccurate information. Failure to disclose items as required by law, or misrepresenting information, may render the contract voidable but doesn't automatically make it void. In instances when one party is allowed to cancel the contract because of the illegal or unfair (voidable) actions by the other party, the contract or agreement then becomes void.