Did you know that one of the scariest things for real estate agents is filling out contracts? Contracts means legalities and there's nothing more stressful than putting your client into a legal quagmire. Some of the contract terms that agents mix up are "valid,""void," and "voidable."
Whether you're learning about contracts for the first time or studying for the real estate exam, knowing the difference between these terms is vital! So, let's clear up the confusion so you don't find yourself in a legal situation down the road.
By the way, this video below is a great explanation of void and voidable, how they're different, how they're the same. I recommend you watch it for a quick and easy understanding of the two terms.
What Is a Valid Contract?
Let's first start with the valid contract. A valid contract is an agreement between two parties that creates mutual legal obligations. The legal obligations are enforceable by law.
The contract can be oral or written, however oral contracts are much harder to enforce and they should be avoided. Making the valid contract written and clear with all the terms and conditions is the best way to make sure the agreement is respected if you need to enforce it by law.
There are 5 important elements that all valid contracts should have to be legal:
1. The parties signing the valid contract have to be of legal capacity
That means the required legal age and mental capacity to sign a contract.
2. Must have an offer
One of the parties must make an offer in the contract.
3. Offer acceptance
The offer made in the contract must be accepted.
4. The valid contract must have a legal purpose
No illegal activity can be used in a contract.
5. Adequate consideration
Consideration means that both parties agree to provide something of value in the agreement they sign (money, car, property, manual labor, etc.). For example, I give you a car and you give me money for it. I give you property and you give me another property in exchange.
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.
What is a Void Contract?
A void or null contract means a contract that cannot be enforced (unenforceable) by any of the parties. That happens when one of the elements required for legal contracts has not been met.
A void contract is considered not executable by design.
A simple example would be to include something illegal in the contract, like giving drugs in exchange for property. That contract is void because it is illegal. There are many situations when the contract is void from the start.
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. For example, you could sign a contract that is legal, but before fulfilling the contract the law changes and makes the contract illegal, and therefore it becomes void.
What is a Voidable Contract?
A voidable contract is a contract in which one of the parties has the option to reject or enforce the contract when the terms of the agreement are not accurately respected or represented. That could mean the information in the contract was not accurate in the beginning or one of the parties didn’t respect the deal entirely.
One party has the option to void the contract or to keep it valid while the other party doesn’t have this option. A voidable contract is valid and legal until revoked or canceled.
One simple example would be John buying a house from Mark. John likes the house as it is, especially the way the garage was turned into a home gym. The contract states the house should remain as it is, but Mark turns the home gym back into a garage. Now the contract is voidable, and John has the option to void the contract and cancel the deal or keep it valid and accept the new garage.
Another example would be signing a contract with one of the parties under the legal age. The minors can enter into contracts but they can breach the terms without legal repercussions since they don’t have the legal age. When it comes to light that one party was under the legal age at the moment of signing the contract, they can choose to ratify the contract when they are legally capable or void it.
Contract ratification means signing new terms that both parties agree that correct the issue which made the contract voidable.
The Difference Between Valid vs. Void vs. Voidable Contracts
To clarify the major differences, void contracts are invalid from the start, while voidable contracts can be canceled or kept as they are by one of the parties. Valid, on the other hand, are perfectly legal contracts.
Neither of the parties can enforce a void contract, while one of the parties can enforce a voidable contract if they choose to.
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.
Final Thoughts On Valid vs. Void vs. Voidable Contracts
Valid, void, and voidable can be confusing when it comes to contracts, but there are some things that can help you remember the difference.
In other words, void means null. It means it’s not valid from the start, and it could be illegal or not to respect all the elements that make contracts valid.
Voidable means it COULD be void, and it also means one of the parties has the option to void it or keep it as it is.
Void contracts give no option to both parties while voidable contracts give options to one of the parties. This should make it easy to remember the difference.
TL;DR:The difference between valid vs. void vs. voidable contracts is simple. Valid contracts are legally binding and allowable. Void contracts are not binding from the start. Voidable contracts can be voided but agreed upon by the parties.
