Key Takeaways:

  • A voidable contract is valid and enforceable unless the party with the right to rescind opts to void it.
  • Common reasons for voidability include fraud, coercion, incapacity, or misrepresentation.
  • Ratifying a voidable contract can make it fully enforceable.
  • Voidable and void contracts differ in that void contracts have no legal effect from the outset.
  • Real-world examples help illustrate the application of voidable contract principles in business, real estate, and employment.
  • Timeliness and clear action are crucial for rescinding a voidable contract.

What is voidable contract? This is a formal agreement between at least two parties that may not be legally enforceable. A contract can be deemed voidable if:

  • One or both parties has not disclosed a material fact.
  • The contract includes misrepresentation, errors, or fraudulent statements.
  • The contract was signed under duress or undue influence.
  • One or both parties could not legally enter into a contract.
  • The contract contains one or more unconscionable terms.
  • Breach of contract occurs.

A contract with one or more of these issues can still be considered legally enforceable if both parties decide to honor its terms anyway. The adversely affected party may fail to recognize the existence of an issue with the contract but can opt to void the contract if such an issue is discovered.

Ratification of a Voidable Contract

Ratification is the procedure to correct a voidable contract and requires all parties to the contract to negotiate new terms that eliminate the issue that made it voidable. For example, if one party was unable to legally sign a contract because he or she was underage, the contract can be ratified when he or she turns 18. If one or both parties no longer wishes to be bound by the contract, it can be voided on the grounds that one party could not legally sign.

When Can a Contract Be Rescinded?

A voidable contract gives one party the legal right to rescind the agreement—but this right must typically be exercised within a reasonable timeframe and before performance is complete. Common grounds for rescission include:

  • Misrepresentation: If one party was misled by false statements.
  • Coercion or Duress: If a party was pressured into signing.
  • Incapacity: If one party lacked legal capacity (e.g., due to age or mental state).
  • Undue Influence: If an unfair relationship was used to manipulate agreement.
  • Mistake: A mutual mistake about a fundamental term may justify cancellation.

Failing to act promptly can lead to implied ratification, where the affected party is deemed to have accepted the contract by conduct.

Voidable vs. Void Contracts

It's important to understand the difference between contracts that are voidable and those that are void. While a voidable contract can still be enforced if both parties agree to the terms despite flaws in the agreement, a void contract is never legally enforceable. Contracts that are void include those that require either or both parties to commit illegal activity to fulfill their terms. Previously valid contracts become void after one party has died or becomes otherwise unable to fulfill the contract terms. A change in applicable laws or public policy can also void a contract.

Parties to a void contract cannot sue the other party for not fulfilling the contract and must restore any benefit they received to the original party. With voidable contracts, the party negatively affected by the issue can sue for damages.

Legal Consequences of a Voidable Contract

Voidable contracts are presumed valid until the aggrieved party takes action. Legal consequences may include:

  • Right to Disaffirm: The injured party may reject the contract and walk away without liability.
  • Restitution: If the contract is rescinded, both parties must return any benefits exchanged.
  • Enforceability: If the aggrieved party chooses not to rescind, the contract can proceed as legally binding.

Note: Courts may also consider whether a party attempted to benefit from the contract after discovering the flaw—this can eliminate the right to void it.

Examples of Voidable Contracts

Minors who have signed a contract can walk away at any time because they did not have the legal ability to enter this agreement. If one party was tricked or forced into signing, the contract is voidable. It is also voidable if one or more parties was under the influence of drugs or alcohol when signing.

Common Scenarios Involving Voidable Contracts

Voidable contracts appear frequently in real-world legal situations, including:

  • Business Agreements: A business partner pressured into signing a contract under threat may void it.
  • Real Estate Deals: A buyer misled about property boundaries may rescind the purchase agreement.
  • Employment Contracts: An employee coerced into signing a non-compete may challenge it.
  • Loan Agreements: If a minor signs a loan contract, it can often be voided until they reach majority age.

Understanding these scenarios helps parties protect their rights and avoid legal disputes.

Examples of Void Contracts

Void contracts may:

  • Pertain to illegal activity such as prostitution, gambling, or another crime
  • Be signed by a minor or another person deemed mentally incompetent to enter a contract
  • Depend on the occurrence of an impossible event or feat
  • Go against public policy
  • Restrain someone from performing certain legal activities such as working or choosing a spouse

How to Identify a Voidable Contract

Unlike void contracts, which are invalid from the outset, voidable contracts may look enforceable. To identify one, look for signs like:

  • One party lacked capacity at signing (e.g., minor or intoxicated).
  • There was clear evidence of threats or undue pressure.
  • The contract involved intentional deceit or concealment.
  • Consent was obtained through manipulation or unfair persuasion.

Parties should thoroughly review contract formation circumstances to determine voidability and act quickly if rescission is appropriate.

What to Do If a Contract Is Void or Voidable

Consult a contract lawyer before agreeing to any written or oral contract. He or she can help make sure the contract in question is neither void or voidable. If you do end up as a party to a voidable or void contract, the first step is usually to request an official analysis by the court. This can help you determine whether the contract would be legally enforced and whether you are eligible for damages, such as in the case of a breach of contract.

If your contract is voided, you should keep copies of all relevant documents as well as bills, receipts, and other supporting paperwork. These documents will provide important evidence if you sue for damages incurred from a void or voidable contract.

Steps to Take When Challenging a Voidable Contract

If you suspect a contract you're involved in is voidable, consider the following steps:

  1. Document the Issue: Record any coercion, misrepresentation, or lack of capacity.
  2. Avoid Performance: If possible, delay acting on the contract until legal advice is obtained.
  3. Consult an Attorney: Legal counsel can advise on your rights and options.
  4. Send Notice of Rescission: Formally notify the other party of your intent to void the contract.
  5. Prepare for Restitution: Return any consideration (e.g., goods or money) received under the contract.

Taking timely and deliberate action protects your legal interests and may preserve your right to void the agreement.

Frequently Asked Questions

1. What is the difference between a void and a voidable contract? A void contract has no legal effect and cannot be enforced. A voidable contract is valid until the party with the legal right chooses to cancel it.

2. Can a voidable contract become valid? Yes. If the party with the right to rescind ratifies the contract, it becomes fully enforceable.

3. How long do I have to void a voidable contract? There is no fixed deadline, but courts typically require action within a reasonable timeframe once the issue is discovered.

4. Who can void a voidable contract? Only the party affected by the legal flaw (e.g., misrepresentation, duress) has the right to void the contract.

5. Is a contract with a minor always voidable? Generally, yes. Contracts entered into by minors are voidable at the minor’s discretion until they reach the age of majority or shortly thereafter.

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