Void

How BC law treats it

A void contract is treated as if it never existed. Common causes include no consensus on essential terms, a purpose that is illegal or against public policy, a statute that declares the agreement void, and fundamental mistakes such as non est factum (signing a document radically different from what the signer believed). Property or money transferred under a void contract may be recoverable through unjust enrichment. A voidable contract is valid until the innocent party chooses to rescind it. Misrepresentation, including fraudulent misrepresentation, duress, undue influence and unconscionability usually make a contract voidable, not void. The innocent party must act promptly. Delay, affirming the contract, or a third party acquiring rights in good faith can bar rescission. Courts do not always treat illegality as fatal. In Transport North American Express Inc v New Solutions Financial Corp, 2004 SCC 7, a loan that charged a criminal interest rate was not wholly void; the court severed the illegal part and enforced the rest. Severance clauses support this approach, although courts will not rewrite an unreasonable restrictive covenant. BC statutes also affect validity. Under the Infants Act, RSBC 1996, c 223, s. 19, most contracts with a person under 19 are unenforceable against the minor, though the court can make orders for compensation or restitution under s. 20. The Builders Lien Act, SBC 1997, c 45, s. 42(2) makes agreements to exclude that Act void.

What it means for your business

Whether a contract is void or voidable decides who holds the power and how fast you must move. If a deal was induced by misrepresentation, you may lose the right to rescind if you keep performing or wait too long. If an agreement is void, any security, guarantee or payment terms built on it may fall with it. Businesses should draft clear essential terms, include a severability clause, and get advice promptly when a problem with the deal surfaces. Example: A Surrey distributor discovers that the seller of a business misstated its revenue. The purchase agreement is voidable, not void, so the distributor must decide promptly whether to rescind or keep the business and sue for damages.

Risks and common mistakes

Calling a contract signed under duress or induced by fraud void, when it is usually voidable at the innocent party's option. Continuing to perform a voidable contract after learning the facts, which can count as affirming it. Assuming any illegal term wipes out the whole agreement, when courts may sever the offending part. Leaving essential terms such as price or scope to be agreed later, so no binding contract forms. Relying on a contract with a minor without understanding the limits in the Infants Act.