Question: Explain the terms void and voidable contracts.

Discuss the rights and obligations of parties to a void and voidable contract after its recission. Answer: A contract that is "void" cannot be enforced by either party., The law treats a void contract as if it had never been formed. A contract will be considered void, for example, when it requires one party to perform an act that is impossible or illegal. A "voidable" contract, on the other hand, is a valid contract and can be enforced. Usually only one party is bound to the contract terms in a voidable contract. The unbound party is allowed to cancel the contract, which makes the contract void. The main difference between the two is that a void contract cannot be performed under the law, while a voidable contract can still be performed, although the unbound party to the contract can choose to void it before the other party performs. Void contracts are unenforceable by law. Even if one party breaches the agreement, you cannot recover anything because essentially there was no valid contract. Some examples of void contracts include:

Contracts involving an illegal subject matter such as gambling, prostitution, or committing a crime. Contracts entered into by someone not mentally competent (mental illness or minors). Contracts that require performing something impossible or depends on an impossible event happening. Contracts that are against public policy because they are too unfair. Contracts that restrain certain activities (right to choose who to marry, restraining legal proceedings, the right to work for a living, etc.).

Voidable contracts are valid agreements, but one or both of the parties to the contract can void the contract at any time. As a result, you may not be able to enforce a voidable contract:

Contracts entered into when one party was a minor. (The law often treats minors as though they do not have the capacity to enter a contract. As a result, a minor can walk away from a contract at any time.) Contracts where one party was forced or tricked into entering it. Contracts entered when one party was incapacitated (drunk, insane, delusional).

If a contract is rescinded, it is set aside and treated as though it had never existed. The court will seek to restore the parties to the position they would have been in had they never signed the contract. For example, if a seller made false representations about his goods and the contract was rescinded as a result, the seller would be compelled to take back the goods and refund the purchase price to the buyer. If the buyer had incurred additional expenditure in relation to the contract, such as warehousing costs, then he would also be entitled to reimbursement of these, to ensure that he was not adversely impacted by having entered into the contract. The circumstances may prevent the court from being able to rewind time in this way. If the buyer had sold on the goods in this example, they would not be available for return to the seller and rescission would be impossible. An award of rescission is therefore always at the courts discretion. Where rescission is not available, the innocent party will still be entitled to damages. Rescission is generally only available in limited circumstances, such as where there has been misrepresentation, fraud or mistake - matters which affect its formation. This can be varied by agreement between the parties; some contracts set out circumstances in which the agreement will be capable of rescission. Conversely, the right to rescind can also be expressly excluded by contract. Mutual rescission, or rescission by agreement, is a discharge of both parties from the obligations of a contract by a new agreement made after the execution of the original contract but prior to its performance. Rescission by mutual assent is separate from the right of one of the parties to rescind or cancel the contract for cause, or pursuant to a provision in the contract. The parties to an executory or incomplete contract can rescind it at any time by mutual agreement, even if the contract itself contains a contrary provision. A rescission by mutual assent can properly include a promise by either or both parties to make restitution as part of the contract of rescission. The right to rescind is limited to the parties to the contract or those legally authorized to act for them. As with other contracts, the parties to the rescission agreement must be mentally competent. Form The rescission agreement can be either written or oral. An implied agreement is also effective, provided the assent of the parties can be shown by their acts and the surrounding circumstances. An express rescission of a contract as a whole is adequate and effective, without specifically designating each and every clause to be rescinded.Unless a statute provides otherwise, an oral rescission agreement is valid, even though the contract being rescinded contains a provision that it can be altered only in writing. Assent All the parties to the contract must assent to its rescission because mutual rescission involves the formation of a new contract. A meeting of minds can be reached by an offer to rescind and an acceptance by the other party. One party to a contract cannot rescind it simply by giving notice to the other party that he or she intends to do so. Although a breach of contract by one party is not an offer to rescind, the other party can treat the repudiation as an offer to rescind that he or she can accept, leading to rescission of the contract by

mutual assent. Rescission must be clearly expressed, however, and the conduct of the parties must be inconsistent with the existence of the contract. The fact that some of the materials that form part of the subject matter of the contract have been returned is not conclusive as to whether rescission has occurred. Consideration An agreement to rescind a prior contract must be based on a sufficient consideration, an inducement. When a contract remains executory on both sides, an agreement to rescind by one side is sufficient consideration for the agreement to cancel on the other, and vice versa. If the contract has been executed on one side, an agreement to rescind that is made without any new consideration is void, that is to say of no legal force or binding effect. Operation and Effect The mutual rights of the parties are controlled by the terms of their rescission agreement. The parties are generally restored to their original rights in regard to the subject matter. They no longer have any rights or obligations under the rescinded contract, and no claim or action for subsequent breach can be maintained. Whether rights or obligations already accrued are abandoned when the contract is rescinded in the Course of Performance depends on the intention of the parties, as deduced from all attending facts and circumstances, and on whether the parties have reserved such rights. Recovery can be allowed, however, for partial performance.