Key Takeaways

  • Voidable contracts are initially valid and enforceable but may be canceled by the disadvantaged party.
  • Common reasons for voidability include fraud, duress, undue influence, misrepresentation, incapacity, and lack of legal consent.
  • Contracts involving minors, intoxicated parties, or coercion are classic voidable scenarios.
  • Ratification can validate a previously voidable contract once the defect is corrected.
  • Ignoring a voidable contract may result in financial loss, litigation, or business disruption.
  • Only the injured or legally incapacitated party can rescind a voidable contract.
  • Voidable contracts differ from void contracts, which have no legal effect from the outset.
  • Rescission, time limitations, and real-life examples help contextualize enforceability.

A voidable contract is an agreement between two people deemed unenforceable for one or more legal reasons. Just because a contract exists doesn't mean it's always enforceable. A voidable contract appears to be a legal contract when it's made; however, it can be annulled or rescinded in court.

Reasons a Contract Might Be Voidable

There are a variety of reasons the court might deem a contract unenforceable, including:

  • Misrepresentation or fraud.
  • Duress of undue influence.
  • Legal incapacity to enter into contract.
  • Breach of contract.
  • Unconscionable terms.
  • Failure to disclose a material fact.

A contract can be canceled due to a mutual factual mistake. However, failure to read a contract does not make it voidable. Lack of capacity might include intoxication at the time the contract was signed or mental impairment that keeps someone from understanding the contract terms. 

Minors lack legal capacity to enter into a contract, as well. If a minor did not get a parent or guardian's consent, the contract can be voided. However, if the minor reaches the age of consent, which is 18 in most states, and doesn't request to cancel the contract within a reasonable amount of time, a judge might determine the contract to be binding.

Contracts can be deemed voidable due to coercion, fraud, misrepresentation, and undue influence. Victims of coercion and these other scenarios have the right to ask for the contract to be voided.

Essentially, a voidable contract was at one time legal and enforceable. If one party discovers the contract has one or more defects, they can request it be deemed a voidable contract. The contract will remain enforceable and valid if the party with the power to have it declared voidable chooses not to reject it despite the defect. Unfortunately, the person who could have the contract deemed voidable is often unaware of the fraud or misrepresentation.

You can save a contract if only one or two parts are voidable. This is called severance.

Common Scenarios Where Voidable Contracts Arise

Voidable contracts frequently occur in the following real-world situations:

  • Minors entering contracts without parental consent.
  • Contracts signed under duress, such as pressure or threats.
  • Agreements made while intoxicated or mentally impaired.
  • Business contracts with concealed information, such as hiding key financial liabilities.
  • Employer-employee contracts involving coercion or unbalanced power dynamics.
  • Consumer agreements signed based on deceptive advertising or false claims.

These examples underscore the importance of clear, informed consent and mental capacity at the time of contract formation.

Psychological Pressure and Undue Influence

Voidable contracts may also arise from subtle psychological manipulation, particularly in relationships of trust or dependency. This includes:

  • Caretaker-beneficiary relationships where an elder is influenced to transfer property.
  • Employer-subordinate dynamics where pressure is exerted through implicit threats.
  • Religious or spiritual coercion where authority figures pressure followers into agreements.

In such cases, courts assess whether one party had an unfair advantage over the other during contract formation.

Ratification of Voidable Contracts

If you have a voidable contract, you can have it ratified to correct the issues. To go through the ratification process, the contract parties must agree to new terms. These terms will have removed the problem with the initial contract. 

For example, if a person lacked capacity at the time he or she entered into the original contract, that individual can opt to ratify the original contract once he or she has legal capacity. Another example is if one party was under the influence of a mind-altering substance at the time the contract was executed. This would render the original signature invalid. If that party wants to move forward with the contract, he or she can ratify it when in a mindset that provides legal capacity.

Time Limits for Rescinding Voidable Contracts

State laws typically impose statutes of limitations on how long a party has to rescind a voidable contract. These limits vary but commonly require:

  • Timely discovery of the issue, such as misrepresentation or incapacity.
  • Prompt action after discovering the grounds for rescission.
  • No indication of ratification, such as continued performance under the contract after becoming aware of the defect.

Delays or continued compliance may forfeit the right to void the agreement.

Legal Consequences of Not Addressing Voidable Contracts

Failing to address a voidable contract can result in serious consequences:

  • Unenforceable obligations: If one party later rescinds the contract, obligations or expectations may vanish.
  • Financial losses: A party may suffer economic harm if the contract is voided after they’ve already performed.
  • Litigation risks: Disputes over contract validity may result in legal battles and added legal fees.
  • Business uncertainty: In business contexts, unresolved voidable contracts can disrupt operations or partnerships.

Early identification and resolution—whether through ratification or rescission—can help avoid these risks.

How Voidable and Void Contracts Differ

People often use the terms “voidable” and “void” to mean the same thing when talking about contracts; however, they are extremely different:

  • A void contract is completely unenforceable, and the law looks at the contract as though it never existed.
  • A voidable contract can still be enforceable if the parties so desire.

The court can deem a contract void if the contract terms require one or both parties to participate in an illegal act or if one party dies and therefore is unable to complete the contract terms. The best way to look at void versus voidable is that a void contract cannot be legally fulfilled, whereas a voidable one can. The “unbound” party, however, has the right to void it before the other party acts on the contract terms.

Who Can Void a Voidable Contract?

Only the party who lacks full legal consent or was harmed by the contract formation can void a voidable contract. This includes:

  • The minor in a minor-adult contract.
  • The coerced party in a duress situation.
  • The defrauded individual in cases of misrepresentation.

The other party cannot unilaterally cancel the contract unless both agree. If the injured party chooses not to act, the contract remains enforceable. This right to rescind is often time-limited, depending on state laws and the nature of the contract.

What Happens When a Voidable Contract Is Rescinded?

When a voidable contract is rescinded, it is treated as though it never existed. The legal consequences of rescission include:

  • Restitution: Both parties are returned to their pre-contractual positions. Property, funds, or services exchanged must be returned, if possible.
  • Discharge of Obligations: Neither party is required to fulfill the contractual terms after rescission.
  • Legal Release: The rescinding party is generally released from liability arising from the agreement.

Rescission often requires formal notice and may involve court intervention if the other party contests it.

Examples of Void Contracts

Examples of void contracts include:

  • Those that involve an illegal subject matter, such as prostitution, criminal acts, and gambling.
  • Those that are deemed to be too unfair because they are against public policy.
  • Any contract that restricts an individual's right to marry, live somewhere, work, etc. 

It's a good idea to consult with a business contract lawyer before entering into any oral or written agreement. A contract lawyer can help draft a valid contract that will be binding and enforceable, so you don't have to stress over whether the contract might be void or voidable.

Real-World Examples of Voidable Contracts

Here are practical illustrations of voidable contracts in action:

  • A minor signs a fitness membership contract without parental consent. Upon turning 18, they can either ratify or cancel the agreement.
  • An individual signs a loan agreement while heavily intoxicated and later contests the contract once sober.
  • A buyer purchases property based on false claims that flood risks were minimal. The misrepresentation gives the buyer the right to void the contract.
  • An employee is pressured by their employer to sign a non-compete clause under threat of termination, creating grounds for voidability due to duress.

These examples demonstrate how legal defects at the time of contract formation can influence future enforceability.

Key Characteristics of a Voidable Contract

A contract is considered voidable if it meets the following criteria:

  • Valid on the surface: It appears legally binding when formed.
  • Enforceable until voided: The contract remains active unless one party rescinds it.
  • Correctable: The flaw (e.g., coercion or incapacity) can often be addressed through ratification.
  • Subject to personal decision: Whether to void rests with the harmed or disadvantaged party.

This differs from a void contract, which is invalid from inception and has no legal effect.

Legal Requirements for a Voidable Contract

For a contract to be considered voidable, it must meet certain conditions that distinguish it from simply being invalid. These include:

  • Voluntary Consent Lacking: One party did not freely consent due to deception, force, or influence.
  • Contractual Capacity Issues: One party was legally unable to enter a contract (e.g., minor, intoxicated).
  • Mutual Assent Was Defective: Essential agreement elements—like offer and acceptance—may have been undermined by misrepresentation or mistake.
  • Timely Challenge: The party seeking rescission must typically act within a reasonable period after discovering the issue.

These legal thresholds must be met to trigger the right to rescind or affirm the agreement.

Frequently Asked Questions

  1. What makes a contract voidable rather than void?
    A voidable contract is legally valid until one party chooses to cancel it due to issues like fraud or lack of capacity. A void contract is invalid from the beginning.
  2. Can both parties cancel a voidable contract?
    No. Only the injured or disadvantaged party has the legal right to void the contract.
  3. Is a contract signed under pressure enforceable?
    Not always. If the pressure qualifies as duress or undue influence, the contract may be voidable by the coerced party.
  4. Can a voidable contract become valid later?
    Yes, through ratification. If the party with the right to rescind instead accepts or affirms the contract, it becomes fully enforceable.
  5. What happens if I don't rescind a voidable contract in time?
    If too much time passes or you continue acting under the agreement, you may lose the right to cancel it, making it fully enforceable.

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