Voidable

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When a contract becomes voidable it means it may be rescinded by one or both parties. Contract usually become voidable if they were entered into because of a vitiating factor such as a misrepresentation, duress, undue influence or others.

Distinction from void

Voidable is distinct from being void at common law, which is known as void ab initio ('from the beginning'). When a contract is void ab initio, it means that the contract in fact never existed and thus any consideration which moved between the parties did not legally change ownership. A court can only declares a contract as void when perfect restitution is possible, which is very rare.[1] It also has great significance in the case of third-party involvement, since it entails that the consideration did not legally pass to the third party. For example:

  • A sells B a car, and B sells it to C,
  • If the contract is void, the car never became B's and therefore he couldn't have sold it to C.
  • That means C has to return the car to A, and if B disappears, C he is an innocent party who is left with nothing.

In contrast, when a contract is declared as voidable, it does not mean that the contract has never existed but merely that a party (or both) has the option of rescinding it, in which case both parties will be restored to their original positions (as if the contract never existed). This is significant because rescission (an equitable remedy) is a more flexible remedy than a contract being void at common law. For this reason, the courts are more inclined to declared a contract voidable the void ab initio.

In order to understand why rescission is a more flexible, it is recommended to read the page regarding rescission along with the cases detailed there.

References

  1. Alati v Kruger (1955) 94 CLR 216
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