What Makes a Contract Voidable and Why It Matters

Key Takeaways

• A voidable contract is legally valid but can be canceled by one party due to specific legal defects.
• Common reasons include misrepresentation, fraud, duress, undue influence, mental incompetence, or mutual mistake.
• Void contracts are never valid from the start, while voidable contracts start as valid and remain enforceable unless rejected.
• Contracts involving coercion, intoxication, or incapacity are classic examples of voidable agreements.
• Ratification can validate a previously voidable contract if the underlying issues are resolved.
• The law often protects the party lacking full consent, knowledge, or capacity in a voidable agreement.

What makes a contract voidable is important knowledge not just for business owners but for anybody. This information is essential for drafting proper legal agreements as well as protecting oneself from being bound by unfair contract terms.

What Makes a Contract Valid?

For a contract to be valid and enforceable under the law, it must be consensual and legal, it must have a clearly defined “consideration” (value exchanged between the parties), and it must be signed by two adult parties of sound mind intending to satisfy the terms of the contract.

What Is a Voidable Contract?

A voidable contract is a legal agreement that could become unenforceable if any of the following scenarios occur:

• Either or both parties withheld important information.
• Either or both parties made a mistake.
• The information was misrepresented.
• A fraud occurred.
• Undue influence or duress was exercised over a party.
• A party was legally incapable to enter a contract.
• The terms of the contract are unconscionable.
• A breach of contract occurred.

If any of such defects are discovered in the contract, a party can reject the contract. If not rejected, the contract remains voidable contract can be ratified if parties are able to remove the found defect and create new terms that both can agree to. For example, if one of the parties signed the agreement while intoxicated, thus invalidating the signature, the contract may be resigned later when the party is in sound state of mind.

Common Legal Grounds That Make a Contract Voidable

A contract is considered voidable when one party has the legal right to reject it due to certain flaws. Some of the most common legal grounds that make a contract voidable include:

• Misrepresentation: When one party provides false or misleading information that induces the other party to enter into the contract.
• Fraud: Intentional deception, such as hiding critical facts or lying about material elements of the agreement.
• Undue Influence: When one party uses a position of power or trust to pressure the other into signing the contract.
• Duress: The use of threats, coercion, or unlawful pressure to compel someone to agree to the contract.
• Mental Incapacity: If a party is mentally impaired and cannot understand the nature and consequences of the agreement.
• Intoxication: If a party was under the influence of drugs or alcohol to the extent that they could not comprehend the terms.
• Mutual Mistake: Both parties are mistaken about a fundamental fact, which affects the core of the contract.
• Minors: Contracts signed by individuals under the age of majority are usually voidable at the discretion of the minor.

Each of these grounds involves some failure in the elements of genuine consent or legal capacity—core aspects of a legally enforceable agreement​​.

How Are “Void” and “Voidable” Contracts Different?

A void contract is not a valid contract. Such a contract is impossible to enforce from the very beginning, so the parties involved remain unbound by its terms. Contracts that requires parties to engage in some type of illegal activity are inherently void as well as contracts signed by minors. Also, when the terms of a contract become impossible to meet, such as in case of a party's death, the contract becomes void. The following situations void a contract:

• The agreement's terms are either illegal or violate public policy.
• At the time of signing, a party was not of sound mind.
• A party was not of legal age.
• The terms of the contract are impossible to satisfy.
• The contract violates a party's rights.

By contrast, a voidable contract is valid and enforceable until one of the parties rejects it for a certain flaw found in the contract after signing. Such a contract remains valid if both parties decide to proceed regardless of the defect. In voidable contracts, one party is bound by the terms, while another one is free to cancel the contract any time. The unbound party's rejection of the contract makes it voidable. The following circumstances can deem a contract voidable:

• A party was forced or threatened to sign the contract.
• A party was under undue influence.
• A party was mentally incompetent, such as a minor or a person suffering from mental illness.
• A breach of contract occurred.
• Mistakes were made by both parties. Note that this is different from simply not reading a contract, which does not make a contract voidable.
• A fraud was committed (withholding or falsifying information or having no intention to deliver on the terms of the contract).
• Facts were misrepresented.

Examples of Voidable Contracts in Real Life

To better understand what makes a contract voidable, it helps to consider some practical examples:

• Real Estate Sales: A seller conceals known defects in a property. The buyer may void the contract based on fraudulent misrepresentation.
• Business Agreements: An employee signs a non-compete clause under the threat of immediate termination. This may constitute duress.
• Loan Contracts: A borrower agrees to a loan while mentally impaired or under the influence, making the contract potentially voidable.
• Personal Services: A minor enters a contract with a talent agency. Because the signer is underage, the contract can generally be canceled by the minor or their guardian.

In each of these cases, the party with less bargaining power or awareness has the legal right to void the agreement to protect their interests​​.

Six Steps to Execute a Contract Properly

1. Read the entire document thoroughly.
2. Make sure the terms of the contract are described clearly and in details.
3. Make sure you understand the terms of the agreement. Clarify all phrases and definitions that are not clear.
4. Make sure to have your contract in writing so you have proof in case of any disputes in the future.
5. Be attentive to the acceptance details, such as an expiration date.
6. Always confirm the identity of the other party.

New Heading: How to Prevent a Contract from Being Voidable

Although not all voidable contracts are predictable, parties can take proactive steps to reduce the risk of creating one:

1. Disclose All Material Facts: Be transparent about any information that could influence the decision to enter the agreement.
2. Avoid Pressure Tactics: Ensure that all parties feel free and uncoerced when signing.
3. Confirm Legal Capacity: Verify that all signers are of legal age and mentally competent.
4. Review and Clarify Terms: Use clear, unambiguous language and ensure that each party fully understands the terms.
5. Document the Negotiation Process: Keeping records of discussions and drafts can help prove intent and eliminate confusion.
6. Seek Legal Counsel: Especially for high-stakes or complex contracts, having a lawyer review the agreement can ensure enforceability and reduce risk.

Following these practices strengthens the enforceability of the contract and minimizes vulnerabilities to legal challenges​​.

Do You Need a Lawyer for Any Contract Issues?

Because of their specificity and numerous nuances, contract laws are not easy to comprehend. A seasoned business lawyer can help you create your contract and avoid mistakes that could make it void or voidable. In case of a breach of contract, your attorney will be your legal representative in court.

Frequently Asked Questions

1. What makes a contract voidable rather than void?
   A voidable contract is initially valid but may be canceled by one party due to specific legal flaws like fraud, coercion, or incapacity. A void contract, in contrast, is never legally valid.
2. Can a voidable contract be enforced?
   Yes, until it is rejected, a voidable contract remains legally enforceable. If the defect is corrected and both parties agree, it can also be ratified.
3. What happens if both parties make a mistake in a contract?
   If both parties are mistaken about a fundamental fact, the contract may be voidable due to mutual mistake.
4. Can minors enter into valid contracts?
   Minors can enter into contracts, but these are typically voidable at the minor’s discretion until they reach the age of majority.
5. How can I avoid entering a voidable contract?
   Avoiding high-pressure tactics, verifying capacity, and ensuring full transparency during negotiations are key ways to reduce the risk of a contract being voidable.

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