Canadian Accredited Insurance Broker (CAIB) One Practice Exam

What defines a void contract?

1. A contract that is legally enforceable

2. A contract that carries penalties for cancellation

3. A contract that cannot support its intended purpose

4. A contract that has been partially fulfilled

The correct answer is: A contract that cannot support its intended purpose

A void contract is defined as one that cannot support its intended purpose, meaning it lacks legal validity and enforceability from the outset. This often occurs when the terms of the contract are illegal, against public policy, or involve parties who do not have the capacity to contract. Because it cannot fulfill any legal obligations or intentions, it essentially has no effect and is treated as if it never existed. The other options present scenarios that do not accurately reflect the characteristics of a void contract. For instance, a legally enforceable contract, even if breached, remains valid unless otherwise terminated. Contracts that carry penalties for cancellation are typically enforceable agreements that may include specific terms for termination. A partially fulfilled contract still holds value and legal standing; it may be enforceable to the extent of what has already been completed, which is not the case with a void contract.