Void Contract in United Kingdom
Void Contract in Contract Law
According to Questions & Answers Law of Contract: Law Revision and Study Guide (Law Questions & Answers, Oxford University Press), by Adrian Chandler and Ian Brown, Void Contract may have the following meaning: A contract that has no legal force from the moment of its making (compare voidable contract). Void contracts occur when there is lack of capacity to contract and by the operation in some instances of the doctrine of mistake. An illegal contract is void. In addition, certain contracts (e.g. gaming and wagering contracts) are declared void but not illegal by statute, and certain contracts that are at common law contrary to public policy are merely void but not illegal. Under UK and EU competition law on restrictive trade practices, clauses infringing those laws are void but usually the rest of the contract continues. Contracts that are void or, in certain cases, illegal may be saved by severance.
Formation of Contracts: Void and Voidable Contracts
Legality of object
The law may prohibit the doing of certain things, or certain acts may be contrary to public policy. If an agreement has an object which is thus contrary to law or public policy, an enforceable contract cannot result.
This was well laid down in an English case, as follows: Each creditor consents to lose part of his debt in consideration that the others do the same, and each creditor may be considered to stipulate with the others for a release from them to the debtor, in consideration of the release by him. Where any creditor, in fraud of the agreement to accept the composition, stipulates for a preference to himself, his stipulation is altogether void; not only can he take no ad vantage from it, but he is to lose the benefit of the composition.’ It is a general rule of public policy that persons who are of full age and in the possession of their faculties should be allowed to contract freely. A person may make a foolish bargain, but the courts will not, as a matter of public policy, declare such con tracts -kid, who of course if the party to the contract comes within one of the classes we have above considered, for example, minors or insane persons, the court will then interfere. When a contract is set aside as being contrary to public policy, what is meant is that the contract belongs to some class of contract which has long been recognized by the law as unlawful. Lord Halsbury said in a (…) case: I do not think that the phrase “public policy” is one which in a court of law explains itself. It does not leave at large to each tribunal to find that a particular contract is against public policy. I deny that any court can invent a new head of public policy. A contract of marriage broker age, the creation of a perpetuity, a contract in restraint of trade, a gaming or wagering contract, or the assisting of the King’s enemies, are all undoubtedly unlawful things ; but it is because these things have been either acknowledged or assumed to be by the common law unlawful, and in case a judge or a court have a right to declare that such things are, in his or their view, contrary to public policy.
Contracts in restraint of general principle
Contracts in restraint of general principle is that contracts which unreasonably restrain trade are void. It is contrary to public policy for a man to contract not to engage in business at all.
There may be circumstances, however, which make it reasonable that a man should undertake not to engage in a particular business for a certain length of time. Thus if a man sells a business and be under takes not to carry on any business which will compete with that which he has sold, he may obtain a better price, and such a contract, if not otherwise unreasonable, will be maintained. Even then, however, the restraint must not be wider than is reasonably necessary. A restraint of this kind may be more reason able now, with our modern means of transportation, than would have been the case fifty years ago. Such a restraint is not necessarily unreasonable because it is unlimited as to space. Thus in a leading case in England,’ Mr. Nordenfelt, who was a manufacturer of guns and explosives, and who supplied them to the various governments of Europe, sold his business to Maxim Nordenfelt & Company, Limited, and under took not to compete with the business for twenty-five years. There was no restriction as to space. The sale was made in England, and later Mr. Nordenfelt began business again in Belgium. The House of Lords held that the restraint in this case was not unreasonable, and that he was bound by his contract.
So also in another case recently decided by the House of Lords, where a man was employed to sell clothing on the instalment plan, and he entered into a contract for three years, and bound himself that upon leaving his present employ he would not work for any competing firm or in the clothing trade for a year at any place within twenty-five miles of the employer’s place of business, or within twenty-five miles of any place where it might do business, the contract was held unreasonable and void. Under the contract, it was pointed out, the employer might have dismissed the man at any time, and if the contract were good the employee would find himself unable to earn a livelihood by perhaps the only business he knew.
Unlawful in restraint of trade are unlawful and criminal
Thus combinations between dealers in staple commodities to control and increase the price by decreasing the production or competition are illegal and void.
In an American case, where a wallpaper company sued to recover the price of wallpapers which it bad supplied, the defendant pleaded that the company was a combination in restraint of trade.’ It was clear from the evidence that the company had a monopoly, and that it was really an illegal combination of factories in the wallpaper trade. The Supreme Court pointed out that to give judgment in favor of the company would be to legalize and make effective the illegal agreement constituting the monopoly, and the court said: Such a judgment cannot be granted without departing from the salutary rule long established in the jurisprudence of both the United States and England, that a court will not lend its aid in any way to enforce or to realize the fruits of an agreement which appears to be tainted with illegality, although the result of applying that rule may sometimes be to shield a defendant who had got something for which, as between man and man, he ought perhaps to pay, but for which he is unwilling to pay. In such cases the aid of the court is denied, not for the benefit of the defendant, but be cause it should be denied without regard to the interests of individual parties.
In England, the United States and certain of the Canadian provinces, however, contracts are generally illegal if made on Sunday. The Bills of Exchange Act, for instance, provides that a bill is not invalid by reason only that it bears date of a Sunday, or other non-juridical day; but apparently if the bill were given in pursuance of a contract which under the statute may be illegal if made on a Sunday, it would be void as between the immediate parties, and as to any person who takes it with notice; but the mere fact that it is dated on a Sunday would not be such a notice.
Contracts in restraint of in restraint of marriage
Contracts in restraint of in restraint of marriage are generally held to be against public policy, and are therefore void.
Agreements to procure or negotiate marriage for reward, known as marriage brokerage contracts, are held to be contrary to public policy, and therefore void. Pollock remarks that all such agreements are void, whether for procurement of marriage with a specified person, or of marriage generally, and services rendered without request in procuring or forwarding a marriage (at all events a clandestine or improper one) are not merely of no consideration, but an illegal consideration for a subsequent promise of reward. It was said in an English case: “Both ladies and gentlemen are frequently induced to promise not to marry any other persons but the objects of their present passion; and if the law should not rescind such engagements, they would become prisoners for life, at the will of the most inexorable jailers—disappointed lovers.”. Contracts in fraud of third contract is void if it tends to induce some third person to commit a breach of trust, or if it tends to defraud a third person. Contracts are opposed to public policy if they are opposed to open, upright and fair dealing, and contracts are void which place a person under an inducement to violate a confidence reposed in him, or which place him under a wrong influence, or under a temptation which injures the rights of third persons.
Thus an agreement to divide the profits of a fraudulent scheme, or even to carry out some lawful object by means of an apparent trespass, breach of contract or breach of trust, is void. Thus, if A and B are interested in common with other persons in a transaction which requires the good faith of all persons interested, and A and B make a secret agreement which is in tended to benefit them at the expense of the others, the agreement is void. Or if B, upon application of A, agrees to advance money to enable him (A) to buy certain goods of C ; B goes to C and pays him the money agreed upon, in order that A may get the goods ; A and C agree that A shall pay a further sum : this agreement between A and C is void, as it is a fraud upon B, who intended to relieve A from paying any part of the price.
Contracts against liability
Contracts against liability for is difficult to express a rule of universal acceptance in Canada upon this subject. According to French law, it is very doubtful whether a man may stipulate for freedom from the consequences of his ordinary negligence. (…)
At English common law, it is said that in the absence of statute to the contrary, a carrier may stipulate for total exemption from liability for negligence. In the English law provinces, this rule has in several instances been altered by statute.
Effect of an illegal stipulation in a contract
Effect of an illegal stipulation in a contract will void the contract as a whole or only in part will depend upon the circumstances. (…)
A person who owns a property and who has undertaken to sell or lease it, but who finds that the purchaser or lessee intends to use it for unlawful purposes, is entitled and may even be bound to rescind the contract. It has been laid down that lie need not even give his reasons for doing so, as he may justify his refusal later. But where a contract has been completely executed, as for example by the transfer of property, the consideration may be paid or the trans fer may have been made for some unlawful purpose of which both parties were aware, but once executed it cannot be set aside. Thus in an English case, where two promissory notes were secretly given to a creditor by a debtor who was making a compromise with his creditors, the notes being in excess of the amount of the creditor’s rightful composition share, judgment was given on one of the notes; a third person intervened and gave the creditor a guarantee for the amount involved, upon the creditor’s staying proceedings. An action on this guarantee was dismissed.
Constitute misrepresentation or fraud sufficient to set aside a contract, there must be proof of an intention to deceive; there must be proof that artifice was used by one party, or with his knowledge, to induce the other to contract. (…)
It is characteristic of a misrepresentation tainted with fraud or deceit, that it is made without positive belief in its truth; there may not be positive knowledge of its falsehood. Thus a person may, in ignorance of its truth or falsehood, make a material representation which proves to be false. In such case, his ignorance will be treated as equivalent to knowledge of falsehood. It was remarked in an English case that “if persons take upon themselves to make assertions on subjects of which they are ignorant, whether they are true or untrue, they must in a civil point of view be held as responsible as if they had asserted that which they knew to be true.” As to the effect of silence, it has been held that it is equivalent to misrepresentation, if the withholding of that which is not stated makes that which is stated absolutely false.
It was said by Lord Campbell that “a single word or nod or wink, or a shake of the head, or a smile from the purchaser, intending to induce the vendor to believe the existence of a non-existent fact, might be fraud.” Thus if A has a picture which he considers valuable, and he thinks it is a Rembrandt, and takes it to a dealer who, knowing that it is a Rembrandt, laughs at A’s suggestion, and indicates that he does not think it is a Rembrandt, and thus induces A to sell it to him for a trifling amount, A, if he finds out that the picture is actually a Rembrandt and that the dealer is disposing of it as such, can recover his picture.
Undue consent of the parties to a contract must be given freely
If it is obtained otherwise, the contract may be set aside, if the person, whose consent has been forced, so desires. Such con tract is voidable, not void ; tho if a person were seized and his hands were forcibly guided to sign his name, say, to a promissory note, it is probable that this contract would’be void, because there would be no con sent.
What may be undue influence in a particular case it is difficult to say. In attempting to discover whether a person gave his consent freely and deliberately, the courts will take into consideration the age and capacity of the person, the nature of the transaction, and all the other circumstances of the case. It may be that the parties stand in such a relation that from habit the one dominates the other, or that under the circumstances one is in a position to use some undue influence.
Thus it has been laid down in an English case, that “Where two persons stand in such a relation that while it continues, confidence is necessarily reposed by one, and the influence which naturally grows out of that confidence is possessed by the other, and this confidence is abused, or the influence is exerted to obtain an advantage at the expense of the confiding party, the party so availing himself of his position will not be permitted to retain the ad vantage, altho the transaction could not have been impeached if no such confidential relation had existed.” And, again, Lord Eldon lays it down that: In equity, persons standing in certain relations to one an other, such as parent and child, man and wife, doctor and patient, attorney and client, confessor and penitent, guardian and ward, are subject to certain presumptions when trans actions between them are brought into question; and if a gift or contract made in favor of him who holds the position of influence is impeached by him who is subject to that influence, the courts of equity cast upon the former the bur den of proof that the transaction was fairly conducted as if between strangers, that the weaker was not unduly impressed by the natural influence of the stronger, or the inexperienced over-reached by him of more mature intellect.
Duress, violence and fear
A person may give his consent to a contract, but that consent may be induced or extorted by fear. If actual violence is used, or violence is threatened, the party consenting under such influence may have his contract set aside. A distinction may be drawn between duress which involves actual compulsion, and menace which means the threat of actual compulsion. The term duress, however, covers both, as would also the terms violence and fear. If a man holds a pistol to another man’s head and threatens to shoot unless that other sign some deed in his favor, the deed is signed as the lesser evil. Under some of the English decisions, especially the older ones, it has been held that to constitute duress or violence there must have been fear of loss of life or limb or of imprisonment; other cases, however, require that at least there shall be a reason able and present fear of serious injury. Thus mere idle threats which are not intended nor understood in a serious sense will not ordinarily be sufficient.
- Walter Johnson, “Commercial Law” (New York, 1917)