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Understanding the Nature of Void and Voidable Contracts Jesse A Campbell Law Review Volume 33 Article 6 Issue 1 Fall 2010 January 2010 Beyond a Definition: Understanding the Nature of Void and Voidable Contracts Jesse A. Schaefer Follow this and additional works at: http://scholarship.law.campbell.edu/clr Part of the Contracts Commons Recommended Citation Jesse A. Schaefer, Beyond a Definition: Understanding the Nature of Void and Voidable Contracts, 33 Campbell L. Rev. 193 (2010). This Comment is brought to you for free and open access by Scholarly Repository @ Campbell University School of Law. It has been accepted for inclusion in Campbell Law Review by an authorized administrator of Scholarly Repository @ Campbell University School of Law. Schaefer: Beyond a Definition: Understanding the Nature of Void and Voidabl Beyond a Definition: Understanding the Nature of Void and Voidable Contracts* INTRODUCTION Contract law has a problem.' With predictable recurrence, court opinions, statutes, scholarly literature, and contract draftsmen use the words "void," "voidable," and "unenforceable" - as well as dozens of other terms of the same ilk - to describe flawed contracts. Yet the meaning of these declarations is persistently and maddeningly slippery. In the rare case where the precise meanings of these words are pressed into service in the courtroom, litigants are often surprised to find the court announce that a transaction formerly (and unequivocally) declared to be void is, in fact, merely voidable or unenforceable.2 The scope of the problem is as widespread as it is trifled; though the distinction between void and voidable is sometimes the most important issue in contract disputes, very little serious, scholarly attention has been paid to the nature of the distinction. Perhaps this dearth of attention can be explained by the fact that many people view the source of the problem as simply one of form. In this view, the confusion is merely a symptom of linguistic laziness. If the legal profession was to more precisely employ the proper terminology, the "problem" would fade away. For others, however, the * The author would like to recognize his patient and encouraging wife, Lindsay, for her unwavering support. The author would also like to thank Professor Richard A. Lord, a brilliant jurist and mentor, who challenged him to write this Comment and provided invaluable feedback. 1. While the topics discussed infra may very likely have some application in other realms of legal theory, this Comment does not intend to embark on such an expansive undertaking. As a result, the scope of this Comment will be limited to informal commercial contracts. For an examination of the void/voidable distinction in the context of corporate stock issue, see C. Stephen Bigler & Seth Barrett Tillman, Void or Voidable? - - Curing Defects in Stock Issuances Under DelawareLaw, 63 Bus. LAw. 1109 (2008). 2. See, e.g., Green Tree Acceptance, Inc. v. Blalock, 525 So. 2d 1366, 1370 (Ala. 1988) ("Although the statute states that the contract is automatically void, in practice the contract is merely voidable .. ."); Ewell v. Daggs, 108 U.S. 143, 148-49 (1883) (observing that the word "void" is "often used in statutes and legal documents ... in the sense of voidable merely .. and not as meaning that the act or transaction is absolutely a nullity, as if it had never existed"). 193 Published by Scholarly Repository @ Campbell University School of Law, 2010 1 Campbell Law Review, Vol. 33, Iss. 1 [2010], Art. 6 194 CAMPBELL LAW REVIEW [Vol. 33:193 problem springs from the nature and function of language itself. In this view, words are imperfect symbols that are often insufficient to fully communicate the underlying concepts. For these people, the goal is to reach past the definition of the words in order to understand what is truly meant. This Comment will advocate the latter approach. To do so, it will first briefly explore the historical development of the concept of voidness. Second, it will detail the rise of the formalist approach, and will provide some criticism of that approach. Third, it will introduce the legal underpinnings of the functionalist approach. Finally, it will attempt to pull back the layer of legal detritus that has developed on this topic to reveal a workable and practical approach to understanding contract invalidity. I. THE FIRST STEP IS ADMITTING WE HAVE A PROBLEM The law is littered with confusion when it comes to the concept of voidness. Though some legal scholars trivialize the distinction between "void" and "voidable" as little more than a trap for amateurs,' the reality is that this seemingly simple distinction has been causing grief for judges and lawyers since before the existence of the United States.' The question of whether a contract, conveyance, or other legal act is void or voidable can sometimes be dispositive of an entire case; yet, for hundreds of years, the courts have lamented that "[tihe distinction between void and voidable is not as distinctly defined as could be wished."' As a result, "[clourts have used the words 'void,' 'voidable,' 'invalid' and 'unenforceable' imprecisely" or even interchangeably.6 The courts' linguistic looseness in this context is somewhat understandable; in most cases, the distinctions between the different types of invalidity are largely theoretical, and proper classification would have no practical 3. Pierre H. Bergeron, At the Crossroads of Federalism and Arbitration: The Application of Prima Paint to Purportedly Void Contracts, 93 Ky. LJ. 423, 440 (2004) ("[A] somewhat metaphysical . quagmire for first-year contracts students."); Rebecca A. Cochran, Hope, Again: Hope Theory in Bar Exam Preparation,48 DuQ. L. REv. 513, 526- 27 (2010) ("[A] topic never really understood in law school."). 4. See, e.g., Digges's Lessee v. Beale, 1 H. & McH. 67 (Md. Prov. 1726) (struggling with the issue of whether a land grant was void or voidable). 5. Arnold v. Fuller's Heirs, 1 Ohio 458, 467 (Ohio 1824). 6. Daugherty v. Kessler, 286 A.2d 95, 97 (Md. 1972); see Abraham J. Levin, The Varying Meaning and Legal Effect of the Word "Void," 32 MICH. L. REv. 1088, 1089 n.3 (1933) (collecting cases expressing a similar sentiment). http://scholarship.law.campbell.edu/clr/vol33/iss1/6 2 Schaefer: Beyond a Definition: Understanding the Nature of Void and Voidabl 2010]1 VOID AND VOIDABLE CONTRACTS 195 effect on a case's outcome.' However, in a small minority of cases, the void/voidable distinction is the central issue; in those cases, courts have no choice but to attempt to make sense of the confusion in order to come to judgment. A. A Brief History of Nothing In ordinary usage, the word "void" means a lack of existence, a nullity.8 It is not a terribly troublesome concept in the abstract, and its meaning has remained remarkably consistent over time.' It is, however, a very powerful word. It contemplates an absolute. Since "void" leaves so little room for nuance, the law has been compelled to recognize slightly more tempered states of nonexistence. The English courts have recognized varying degrees of invalidity since at least the seventeenth century.o Even under this early regime, flawed legal actions could be "void" or "voidable."" Though these terms feel familiar to a modern lawyer, it seems that these early classifications had very little in common with the modern conceptions of void and voidable. Mathew Bacon, an influential eighteenth century legal commentator, framed the distinction this way: A Thing is void which was done against Law at the very Time of the doing it, and no Person is bound by such an Act; but a Thing is only voidable which is done by a person who ought not to have done it, but who nevertheless cannot avoid it himself after it is done; though it may by some Act in Law be made void by his Heir, etc.12 7. In the contracts context this is because a plaintiffs suit can typically be seen as either an avoidance or a plea for the court to recognize the contract's pre-existing invalidity. Therefore, the case will usually come to the same result regardless of whether the underlying contract was void or voidable. 8. WEBSTER'S II NEw RIVERSIDE UNIVERSITY DICTIONARY (Anne H. Soukhanov ed., The Riverside Publishing Company 1984) (1293). 9. Compare Nathan Bailey, DICTIONARIUM BRITTANICUM: OR A MORE COMPLEAT UNIVERSAL ETYMOLOGICAL ENGLISH DICTIONARY THAN ANY EXTANT (Print Ed., Gale ECCO 2010) (1730) (defining void as "empty ... of no force or effect") with Void - Definition and More from the Free Merriam-Webster Dictionary, http://www.merriam- webster.com/dictionary/void (last visited Oct. 27, 2010) (defining void as "containing nothing ... of no legal force or effect"). 10. Keite v. Clopton, 124 Eng. Rep. 799, 799 (1657) ("[Aln act or thing may be said [to be] ... void in several degrees."). 11. Id. 12. 5 MATHEW BACON, A NEW ABRIDGEMENT OF THE LAw 337 (His Majesty's Law- Printers) (1766), available at http://www.archive.org/strean newabridgementof05baco#page/336/mode/2up (emphasis added). Published by Scholarly Repository @ Campbell University School of Law, 2010 3 Campbell Law Review, Vol. 33, Iss. 1 [2010], Art. 6 196 CAMPBELL LAW REVIEW [Vol. 33:193 Unlike the modern formulation, it seems clear that a voidable contract (if such a concept existed at the time)13 could not have been avoided by any of the parties to the contract. In contrast, a void contract was perfectly valid in some contexts. The degrees of invalidity recognized by the early courts under the banner of "void" included: (1) "[alcts that are absolutely void as to all Purposes,"" (2) acts that are void "as to some Purposes only,"" (3) acts that are void "as to some Persons only,"l6 and (4) "[alcts void by Operation of Law [which] may be made good by subsequent Matter."" B.
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