§ 124 Void and Voidable Agreements
In respect of their legal efficacy agreements are of three kinds, being either valid, void, or voidable. A valid agreement is one which is fully operative in accordance with the intent of the parties. A void agreement is one which entirely fails to receive legal recognition or sanction, the declared will of the parties being wholly destitute of legal efficacy. A voidable agreement stands midway between these two cases. It is not a nullity, but its operation is conditional and not absolute. By reason of some defect in its origin it is liable to be destroyed or cancelled at the option of one of the parties to it. On the exercise of this power the agreement not only ceases to have any efficacy, but is deemed to have been void ab initio. The avoidance of it relates back to the making of it. The hypothetical or contingent efficacy which has hitherto been attributed to it wholly disappears, as if it had never existed. In other words, a voidable agreement is one which is void or valid at the election of one of the parties to it. A lease determinable on notice or on re-entry for breach of covenant is not for that reason voidable; because, when determined, it is not destroyed ab initio, but merely from then onwards.312
Void and voidable agreements may be classed together as invalid. The most important causes of invalidity are six in number, namely, (1) incapacity, (2) informality, (3) illegality, (4) error, (5) coercion, and (C) want of consideration.
1. Incapacity. Certain classes of persons are wholly or partially destitute of the power of determining their rights and liabilities by way of consent. They cannot, at least to the same extent as other persons, supersede or supplement the common law by subjecting themselves to conventional law of their own making. In the case of minors, lunatics, and convicts, for example, the common law is peremptory, and not to be derogated from or added to by their agreement. So the agreements of an incorporated company may be invalid because ultra vires, or beyond the capacity conferred upon it by law.
2. Informality. Agreements are of two kinds, which may be distinguished as simple and formal. A simple agreement is one in which nothing is required for its effective operation beyond the manifestation, in whatever fashion, of the consenting wills of the parties. A formal agreement, on the other hand, is one in which the law requires not merely that consent shall exist, but that it shall be manifested in some particular form, in default of which it is held of no account. Thus the intent of the parties may be held effective only if expressed in writing signed by them, or in writing authenticated by the more solemn form of sealing; or it must be embodied in some appointed form of words; or it must be acknowledged in the presence of witnesses, or recorded by some form of public registration; or it must be accompanied by some formal act, such as the delivery of the subject-matter of the agreement.
The leading purpose of all such forms is twofold. They are, in the first place, designed as pre-appointed evidence of the fact of consent and of its terms, to the intent that this method of determining rights and liabilities may be provided with the safeguards of permanence, certainty, and publicity. In the second place their purpose is that all agreements may by their help be the outcome of adequate reflection. Any necessary formality has the effect of drawing a sharp line between the preliminary negotiations and the actual agreement, and so prevents the parties from drifting by inadvertence into unconsidered consent.
3. Illegality. In the third place an agreement may be invalid by reason of the purposes with which it is made. To a very large extent men are free to agree together upon any matter as they please; but this autonomous liberty is not absolute. Limitations are imposed upon it, partly in the interests of the parties themselves, and partly on behalf of the public. There is much of the common law which will not suffer itself to be derogated from by any private agreement; and there are many rules which, though they in no way infringe upon the common law, cannot be added to it as supplementary. That is to say, there are many matters in which the common law will admit of no abatement, and many in which it will admit of no addition, by way of conventional law. It is true in great part that Modus et conventio vincunt legem; but over against this principle we must set the qualification, Privatorum conventio juri publico non derogat. By jus publicum is here meant that part of the law which concerns the public interest, and which for this reason the agreements of private persons cannot be allowed to infringe upon.313 Agreements which in this way overpass the limits allowed by the law are said in a wide sense to be illegal, or to be void for illegality. They may or may not be illegal in a narrower sense, as amounting in their making or in their performance to a criminal or civil wrong.
4. Error or mistake. Error or mistake, as a ground of invalidity, is of two kinds, which are distinguishable as essential and unessential. Essential error is that which is of such a nature as to prevent the existence of any real consent and therefore of any real agreement. The parties have not in reality meant the same thing, and therefore have not in reality agreed to any thing. Their agreement exists in appearance only, and not in reality. This is the case if A. makes an offer to B. which is accepted in mistake by C.; or if A. agrees to sell land to B., but A. is thinking of one piece of land, and B. is thinking of another. The effect of error of this kind is to make the agreement wholly void, inasmuch as there is in truth no agreement at all, but only the external semblance and form of one.314
There is, however, an exception to this rule when the error is due to the negligence of one of the parties and is unknown to the other. For in such a case he who is in fault will be estopped by his own carelessness from raising the defence of essential error, and will be held bound by the agreement in the sense in which the other party understood it.315
Unessential error, on the other hand, is that which does not relate to the nature or contents of the agreement, but only to some external circumstance, serving as one of the inducements which led to the making of it; as when A. agrees to buy B.’s horse because he believes it to be sound, whereas it is in reality unsound. This is not essential error, for there is a true consensus ad idem. The parties have agreed to the same thing in the same sense, though one of them would not have made the agreement had he not been under a mistake. The general rule is that unessential error has no effect on the validity of an agreement. Neither party is in any way concerned in law with the reasons which induced the other to give his consent. That which men consent to they must abide by, whether their reasons are good or had. And this is so even though one party is well aware of the error of the other.316
This rule, however, is subject to an important exception, for even unessential error will in general make an agreement voidable at the option of the mistaken party, if it has been caused by the misrepresentation of the other party. He who is merely mistaken is none the less bound by his agreement; but he who is misled has a right to rescind the agreement so procured.317
5. Coercion. In order that consent may be justly allowed as a title of right, it must be free. It must not be the product of any form of compulsion or undue influence; otherwise the basis of its legal operation fails. Freedom, however, is a matter of degree, and it is no easy task to define the boundary line that must be recognised by a rational system of law. We can only say generally, that there must be such liberty of choice as to create a reasonable presumption that the party exercising it has chosen that which he desires, and not merely submitted to that which he cannot avoid. We cannot usefully enter here into any examination of the actual results that have been worked out in this matter by English law.
6. Want of consideration. A further condition very commonly required by English law for the existence of fully efficacious consent is that which is known by the technical name of consideration. This requirement is, however, almost wholly confined to the law of contract, other forms of agreement being generally exempt from it.
A consideration in its widest sense is the reason, motive, or inducement, by which a man is moved to bind himself by an agreement. It is not for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which the law already allows him. If he sells his house, the consideration of his agreement is the receipt or promise of the purchase money. If he makes a settlement upon his wife and children, it is in consideration of the natural love and affection which he has for them. If he promises to pay a debt incurred by him before his bankruptcy, the consideration of his promise is the moral obligation which survives his legal indebtedness to his creditors. Using the term in this wide sense, it is plain that no agreement made with knowledge and freedom by a rational man can be destitute of some species of consideration. All consent must proceed from some efficient cause. What, then, is meant by saying that the law requires a consideration as a condition of the validity of an agreement? The answer is that the consideration required by the law is a consideration of a kind which the law itself regards as sufficient. It is not enough that it should be deemed sufficient by the parties, for the law has itself authoritatively declared what facts amount to a valid and sufficient consideration for consent, and what facts do not. If men are moved to agreement by considerations which the law refuses to recognise as good, so much the worse for the agreement. Ex nudo pacto non oritur actio. To bare consent, proceeding from no lawfully sanctioned source, the law allows no operation.
What considerations, then, does the law select and approve as sufficient to support a contract? Speaking generally, we may say that none are good for this purpose save those which are valuable. By a valuable consideration is meant something of value given by one party in exchange for the promise of the other. By English law no promise (unless under seal or of record) is binding unless the promisor receives a quid pro quo from the promisee. Contracts which are purely unilateral, all the obligation being on one side, and nothing either given or promised on the other, are destitute of legal operation. Every valid contract318 is reducible to the form of a bargain that if I do something for you, you will do something for me.
The thing thus given by way of consideration must be of some value. That is to say, it must be material to the interests of one or other or both of the parties. It must either involve some gain or benefit to the promisor by way of recompense for the burden of his promise, or it must involve some loss or disadvantage to the promisee for which the benefit of the promise is a recompense. Commonly it possesses both of these qualities at once, but either of them is sufficient by itself. Thus if I promise gratuitously to take care of property which the owner deposits with me, I am bound by that promise, although I receive no benefit in recompense for it, because there is a sufficient consideration for it in the detriment incurred by the promisee in entrusting his property to my guardianship. But if the thing given by way of consideration is of no value at all, being completely indifferent to both parties, it is insufficient, and the contract is invalid; as, for example, the doing of something which one is already bound to the other party to do, or the surrender of a claim which is known to be unfounded.
In certain exceptional cases, however, considerations which are not valuable are nevertheless accepted as good and sufficient by the law. Thus the existence of a legal obligation may be a sufficient consideration for a promise to fulfil it; as in the case of a promissory note or other negotiable instrument given for the amount of an existing debt. At one time it was supposed to be the law that a merely moral obligation was in the same manner a sufficient basis for a promise of performance, and though this is no longer true as a general proposition, certain particular applications of the principle still survive, while others have but recently been abolished by statute. Thus a promise made by a discharged bankrupt to pay a creditor in full was until recently a binding contract, because made in consideration of the moral obligation which survives the legal indebtedness of an insolvent. For the same reason, a promise made after majority to pay debts incurred during infancy was binding, until the law was altered in this respect by recent legislation. Similarly a promise to pay a debt barred by prescription is legally valid even yet, the consideration being the moral (and imperfect legal) obligation which survives the period of prescription.
With respect to the rational basis of this doctrine, it is to be noticed that the requirement of consideration is not absolute, but conditional on the absence of a certain formality, namely that of a sealed writing. Form and consideration are two alternative conditions of the validity of contracts and of certain other kinds of agreements. It may be surmised, therefore, that they are founded on the same reasons and fulfil the same functions. They are intended as a precaution against the risk of giving legal efficacy to unconsidered promises and to the levities of speech. The law selects certain reasons and inducements, which are normally sufficient for reasoned and deliberate consent, and holds valid all agreements made on these grounds, even though informal. In all other cases it demands the guarantee of solemn form. There can be little doubt, however, that our law has shown itself too scrupulous in this matter; in other legal systems no such precaution is known, and its absence seems to lead to no ill results.
Although the doctrine of consideration, in the form received by English law, is unknown elsewhere, it is simply a modification of a doctrine known to the civil law and to several modern systems, more especially to that of France. Article 1131 of the French Civil Code provides that: “L’obligation sans cause, ou sur une fausse cause, ou sur une cause illicite, ne peut avoir aucun effet.”319 This cause or causa is a synonym for consideration, and we find the terms used interchangeably in the earlier English authorities.320 There is, however, an essential difference between the English and the Continental principle. Unlike the former, the latter never rejects any cause or consideration as insufficient. Whatever motive or inducement is enough to satisfy the contracting parties is enough to satisfy the law, even though it is nothing more than the causa liberalitatis of a voluntary gift. By an obligation sans cause, or contract without consideration, French law does not mean a contract made without any motive or inducement (for there are none such), nor a contract made from an inadequate motive or inducement (for the law makes no such distinctions), but a contract made for a consideration which has failed—causa non secuta, as the Romans called it. The second ground of invalidity mentioned in the Article cited is the falsity of the consideration (falsa causa). A consideration may be based on a mistake, so that it is imaginary and not real; as when I agree to buy a horse which, unknown to me, is already dead, or a ship which has been already wrecked, or give a promissory note for a debt which is not truly owing. Finally a causa turpis, or illegal consideration, is as fatal to a contract in French and Roman law as in English.
In English law the failure of consideration (causa non secuta) and its unreality due to error (causa falsa) are grounds of invalidity, only when the absence of such failure or error is expressly or impliedly made a condition of the contract. In a contract for the sale of a chattel, for example, the present existence of the chattel is an implied condition of the validity of the sale.321