Voidable Contract: Definition, How It Works, and Examples

Also, the contracts which are opposed to public policy also ceases its enforceability. Businesses may encounter voidable contracts if they inadvertently engage in fraud, misrepresentation, or other improper behavior during the contract formation process. Such contracts can lead to legal disputes, as the wronged party may choose to void the agreement and seek damages.

Most often, only one of the parties is adversely affected by agreeing to a voidable contract. This may happen because, for example, that party fails to recognize a misrepresentation or fraud made by the other party. Neither of the parties can enforce a void contract, while one of the parties can enforce a voidable contract if they choose to. However, a contract can be valid when signed and then become void due to changes in law or some situations that make the contract impossible to fulfill.

Difference between void and voidable title

Examples of contracts minors may void include financing or credit agreements, long-term service contracts, rental agreements, or any other contract deemed not in their best interest. Minors cannot disaffirm contracts for necessities like food, clothing, shelter, or medical care. For example, a contract to rent a venue that burns down before the event. Legal and physical impossibility can void contracts in some situations if terms cannot reasonably be met. Intentionally deceiving a party about key facts to induce them into signing a contract could render the agreement void. If misrepresentations are substantial enough to undermine meaningful consent, the contract may not be enforceable.

A contract is created at law when there is a mutual exchange of promises upon reasonably understandable terms and conditions. A contract does not have to be reduced to writing in order to be enforceable; however, for the purposes of this manual, the term contract is intended to mean a written form of communication. Please remember that many types of documents can constitute a contract, including invoices, memoranda and letters. A contract that’s legal when it was written and signed can later become void if the law or other circumstances change. For example, let’s say a homeowner and a general contractor sign an agreement to have the contractor remodel the homeowner’s house.

Performance of Contract of Sale

In the simplest terms, a void contract was never legal in the first place, so it isn’t valid even if the two parties have reached mutual assent on all the other essential elements of a contract. By contrast, a voidable contract is legal to begin with, but can later be declared by one of the parties (or in a court of law) to be no longer in effect. Here the contract is likely unenforceable because the statute of frauds requires that certain types of contracts must be written to be legally binding. Without a written document, the supplier could argue the contract itself is invalid and cannot be enforced through legal action. If the injured party chooses to void the contract, the parties must return any exchanged property or money. Voidable contracts remain enforceable until actively cancelled by the aggrieved party.

An example of a void AB Initio agreement is the contract with a minor since the minor is an incompetent party to the contract. A contract for the sale of prohibited drugs would be considered void because it involves illegal activities. Even if the parties agree and perform their respective duties under the void vs voidable contract contract, the law does not recognize such an agreement, and no party can sue for breach if the other fails to perform. Void contracts have no legal standing, and therefore, they do not carry any legal consequences for either party.

Void contracts give no option to both parties while voidable contracts give options to one of the parties. Void contracts don’t give anyone an option, they are invalid no matter what the parties do. Voidable contracts are valid until one of the parties decides to cancel or revoke them for legal reasons. That means gifts can’t be legally enforced even if you sign a contract, because they are offered in generosity and that’s not legally binding. If you offer someone a gift in exchange for manual labor, that will be legal because there is something of value offered in return.

Disaffirmance is the right to renounce a contract that you have agreed to participate in. To disaffirm a contract, you must indicate that you won’t be bound by its terms. This can be done directly, for example in writing, or indirectly, for example by not performing the duties outlined in the contract. Someone who can prove that they lacked the legal capacity to enter a binding contract, such as minors, can disaffirm a contract.

What Is An Invalid Contract?

If the buyer chooses to void the contract upon discovering the seller’s deception, the agreement would be rendered null and unenforceable. The buyer could return the car and demand their money back, while the seller would have no legal grounds to enforce the original sales contract. Voidable contract is the contract which can be enforceable only at the option of one of the two parties to a contract. In this kind of contract, one party is authorized legally to make a decision to perform or not to perform his part.

1. In some cases, courts use the “blue pencil test” to modify unreasonable contract terms instead of striking entire provisions.
2. A contract may also be voidable if one party lacked the legal capacity to enter the contract at the time it was signed.
3. Void and voidable contracts are important legal concepts that relate to the validity and enforceability of agreements.
4. Outside of minority status, voidable contracts typically must be voided through formal legal action and court rulings.
5. In the simplest terms, a void contract was never legal in the first place, so it isn’t valid even if the two parties have reached mutual assent on all the other essential elements of a contract.
6. By contrast, a voidable contract is legal to begin with, but can later be declared by one of the parties (or in a court of law) to be no longer in effect.

1. No, a void contract can’t be made valid merely by mutual agreement to correct the problems that made it void in the first place.
2. Since the consent of the party is not free, the contract becomes voidable.
3. When dealing with void and voidable contracts, it’s essential to understand the legal remedies available to the parties involved.
4. A business owner signs a contract with a supplier after being threatened by a competitor to do so.
5. This means that neither party can claim damages or seek enforcement of any terms contained in the contract.

In some cases, courts use the “blue pencil test” to modify unreasonable contract terms instead of striking entire provisions. This judicial standard allows judges to essentially rewrite clauses to make them lawful and enforceable. If a party can demonstrate they only agreed due to having no meaningful choice or understanding of unconscionable terms, they may have grounds to void or modify the agreement. If Party A promises to give Party B a gift without expecting anything in return, there is no consideration, and the contract may be considered void. A contract requires an exchange of value, and without that, it lacks legal validity.

Parties to Negotiable Instruments

Voidable contracts are valid when made and continues to remain valid till the time it is repudiated by the party which is aggrieved. If you are not well versed in contract law, get someone with more experience to look through the document for you and provide their opinion. A legal professional will be able to advise you on what you don’t understand and identify any issues in the contract before you sign the document. Contracts come with a long list of terms and conditions that we all dread to read.

For example, a contract requiring someone to commit murder would be considered void from the outset. If one party intentionally misrepresents information that is material to the contract, or commits fraud, this can make the contract voidable by the injured party. For example, if a seller lies about the condition of a car in order to induce a buyer to purchase it.