Void Contracts
Void and illegal contract
In the case of voidable contract, the person who wishes to avoid the contract must make counter restitution. Presumptively, goods transferred must be returned. This may be a significant limitation on the ability to obtain restitution.
Where a person can return substantially what he has obtained, restitution is usually allowed. A set off for reduction in value or a cash payment to give credit may be required.
If a person has caused another to enter a contract by fraud or misrepresentation, and the thing concerned have been depreciated, because of this particular feature, restitution will be allowed notwithstanding the failure to give it back in its original state.
Where borrowings are made ultra vires (without power), the contract is void. The absence of valid contractual consideration may amount to a total failure of consideration, creating an entitlement to restitution.
In this case, the fact that actual payments were made under the void contract, does not remove the right to restitution on the basis of failure of consideration. This is a separate basis of recovery to recovery on the basis of mistake itself.
Benefits in kind rendered under a void of contract should be recoverable on a quantum meruit or quantum valebat, on the same principle. There may also be a right to recover possession based on proprietary rights, where title to an asset has not passed. See the sections on failied expectations and proprietary remedies.
Effect of Illegality
Restitution is not allowed for contracts which are prohibited by illegality. To do otherwise would undermine the prohibition.
It appears that a person who acquires title under an unlawful contract may nonetheless take that title, once that property is transferred and delivered, at least in the case of some type of illegality. The illegality may prevent restitution that would otherwise arise.
Where as a matter of public policy, a statute is interpreted as being for the benefit of a particular vulnerable party, the benefits may be recoverable by that innocent party. The courts will interpret whether the parties are equally at fault or so-called in pari delicto.
The principle appears to apply to statutory and common law illegality. It appears that where the statute or common law is interpreted as protecting one person, that total failure of consideration is not required. Some cases suggest that counter restitution may not be required in this case. This has occured in some cases, yunder the Moneylenders Act, the predecessor of consumer credit legislation, by reason of the protective intent of the statute.
Void Contracts
Assets transferred under an illegal contract may be, nonetheless, validly transferred. The innocent party may recover assets transferred under a void contract where the policy of law is protective of a weaker party. In these cases, counter restitution by the innocent party is not necessary
Where a contract is void, there is a total failure of consideration in the sense that the obligation, (the contractual promise) is not valid. A ultra vires contract may fall into this category. The party who seeks restitution, must be able to give counter-restitution, which is a significant practical limitation.
In the case of a voidable contract, the “innocent” party may set aside a voidable contract only if he restore the pre-contract position. This is more onerous than is the case, in relation to void contracts, where restitution may be made by payments in money. It appears that in the case of voidable contracts, restitution in kind must be made.
Most defects in contract formations, such as those caused by misrepresentation and misstate cause them the contract to be voidable. The courts seem lean towards voidability as against voidness, as it is less disruptive.
An asset acquired pursuant to a void or voidable contract, may have been resold, so that the immediate buyer cannot return it to the seller who has been “guilty” of misstatement or misrepresentation. Similarly, the nature of the asset acquired may have been changed, so that this it is not capable of being returned and the change in nature and value may not be compensated, by money alone.
Counter Restitution
The requirement for full restitution in-kind presumptively applies and may be relaxed in certain cases. There is an exception where the reason why the asset cannot be returned is due to the very feature or matter which is misrepresented.
This is so, even if the representation is innocent. The person who makes a representation in relation to the very thing which causes the asset to deteriorate and change in nature, bears the risk.
Similarly, where what cannot be returned is minor and incidental, there will be sufficient counterrestitution. An allowance may be required to make up the difference.
Failure of Consideration
The failure of consideration requirement does not apply to void contracts in the same way that it applies voidable contracts and most other cases of restitution. The courts of equity more readily allow reinstatement and the restoration of the original position on terms, in the case of a void contract.
Historically, the requirement for total failure of consideration applied to void contracts. The courts looked to whether a substantial benefit had been received and it this was so, restitution would not be available.
The modern position is that the failure of consideration may include the failure to obtain a valid counter promise rather than non-receipt of actual counter performance. Monies paid under void contract may be recovered, notwithstanding partial performance. This has the effect of allowing restitution more readily, where the apparent contract is a nullity, by reason for example, that it is made outside corporate powers. The courts of equity more readily allow reinstatement and the restoration of the original position on terms, in the case of a void contract.
There is a claim for quantum meruit or quantum valebat for benefits provided under a void contracts, unless it is not intended that the goods or services are to be provided gratuitously. Accordingly, where the contract is void as opposed to voidable, the remedy is measured by value of benefits in kind (quantum meruit or quantum valebat) , rather than by reference to the contract.
Effect of Absence of Contract
Where the contract is void, then any limitation on the sum recovered under the contract will not apply on the basis that the contract is of no effect. This position follows logically from there being no contract. Although the circumstances that made the contract void vary considerably, the courts take the logical position that there is no contract, and that the ostensible contract should not govern the value of what is recovered.
In some cases, the absence of contract may be due to factors which go to the heart of consent and bargain. Here the rejection of the putative contract is readily understandable. Where the failure is more technical in nature and less obvious, such as where the contract is outside the powers of a corporate body, the abandonment of the contract may seem intuitively less obvious.
The failure of consideration goes to the heart of void insurance and guarantees where, quite literally nothing is received so that the negation of the contract is obvious. More incongruous is the case of loan agreements, where an entity has borrowed monies outside of its powers. THeh modern position makes the monies recoverable on restitutionary principles, without reference to the terms of the contract.
Void, Voidable and Avoidance
Where contracts are voidable, restitution requires that the contract be first avoided. It appears in principle, that once this is done, the monies paid may be recovered on a restitutionary basis. Likewise quantum meruit of quantum valebat are available where services or benefits have been provided under a void contract. Similar issues to those which arise in other contexts of restitution, arise with regard to the transfer of title and possession of assets.
In the case of duress caused by threats of violence, the contract is likely to be void. In this case the above principles apply. In other cases involving a lesser degree of pressure or influence, the contract is more likely to be voidable. In this case he will be obliged to make counter-restitution and may loose the right to restitution if this is not possible. However, policy issues may arise. If a person is forced to accept services under threat, he is unlikely to be required to pay or allow a reasonable sum, in order to get his money back.
The total failure of consideration principle appears to apply to minor’s contracts. The taking of any benefit by the minor appears to preclude him from recovery on the basis of restitution. It has been argued that this is anomalous, and does not give proper protection to minors. It would appear reasonable that given the protective objective of the statute, that restitution should be available, with the minor giving counter restitution for what he has received.
Even where property is transferred, case law suggest that unless there is a total failure of consideration, the minor may not undo the transfer. Cases have held that partial use of a vehicle for a period was sufficient to prevent total failure occurring. Once again this approach seems to be inconsistent with the protective purpose of the statute.
Outside of Powers
A company is limited by its objects. There have been a number of cases where lending has taken place to companies outside of their corporate powers and objects. Because the lender’s advisors have notice of the Memorandum and Articles of Association, they are deemed to have actual knowledge notwithstanding certain protections that otherwise protect outsiders.
Payments made by a company outside its powers may be recovered. Credit must be given by way of counter restitution Monies paid under a contract outside of the company’s powers may be recovered on the basis of failure of consideration. Monies lent to a company outside its powers will generally be recoverable.
Writing Required
Where statutes require a written form, the recovery of benefits paid without compliance, will depend on the interpretation of the statute. In the case of Consumer Credit Act, there is specific provision regarding whether recovery. In the case of other statutes requiring writing, there is likely to be restitution to prevent unjust enrichment. As in such cases, no effective consideration may be obtained by the party who lacks the written document.
In some cases, parties will expend money in anticipation of a contract where it is specifically requested and confirmation is given (for example, that a tender would be accepted). A claim for quantum meruit may be allowed for payment of a reasonable sum, if the performance is not merely preparatory, but is part of the contract, then it is likely to be quantum merit. Where the works are really preparatory or overheads, recovery is unlikely.
Minors
Most contracts are unenforceable against a person who is under age. Claims against minors are largely unenforceable on a restitutionary basis. Otherwise, the minor protection legislation could be circumvented. The courts of equity may allow recovery where money has been obtained on the basis of fraud, provided that the monies are still available.
Although contracts by minors are void or potentially void, recovery may be allowed, where there has been a total failure of consideration. The other party must receive nothing in return and must be able to return the benefits received if any.
Questions arise as to whether the minor can recover assets transferred, if there has not been a total failure of consideration. The case law is contradictory. In a number of cases, the child’s receipt of benefits under the contract have precluded recovery on the basis of restitution.
Recovery by the minor
At common law, the courts have been reluctant to allow recovery against a minor, even for restitution Where a minor had agreed to sell goods but failed to deliver them, an action for recovery of the price was disallowed, even where there was a total failure of consideration. A number of principle, limit this harshness of this position, at lease to some extent.
If the minor was guilty of fraud or still had the money or property, an equitable remedy might require its return. If he obtained the money or property by fraud and later sold it, the proceeds might be attachable by way of restitution. The supplier of goods or services to a minor, under a contract which is terminated for breach by the minor, would appear not to be entitled to restitution, as it would give effect to the minor’s obligations contrary to the statute.
The cases in which the minor was not obliged to repay money received, have been criticised. The requirement to repay monies received recoups what should not have been received. It is not equivalent to making him liable for damages. It is argued that it is not necessary to preclude a restitutionary remedy in order to protect the minor. The Law Reform Commission has proposed in its 1985 papers on minors contracts, that the courts have discretion to allow restitutionary receovery.
The Minors Contract Act 1987 in England permits the court discretion to order the minor to restore assets obtained under a contract, and the proceeds or substituted assets representing it, if the minor still has it.