Relationships, both professional and personal, can greatly benefit from contracts.
They specify the conditions of an agreement or deal between two or more parties.
Contracts are meant to be binding, but sometimes unforeseen events call for the termination or voiding of the agreement.
This guide will discuss what voidable contracts are, the circ*mstances that render them voidable, and some examples.
Key takeaways
- Voidable contracts allow the parties to legally terminate the agreement under certain conditions.
- Miscommunication, undue influence, minimal mental incompetence, and coercion are all factors that can lead to such contracts being signed.
- Ratification can validate voidable contracts. It occurs when one or both parties to a voidable contract, who had the option to void it, agree to validate it.
What is a voidable contract?
A simple definition of a voidable contract is an agreement between two parties that one or both parties can legally cancel.
The idea behind voidable contracts is to give courts the ability to assess a contract’s fairness in light of the circ*mstances surrounding its formation.
They will be able to tell if someone was unfairly forced or coerced into signing a contract that they would not have in a normal situation.
Void vs. voidable contract: What’s the difference?
Understanding the difference between void and voidable contracts is crucial for anyone navigating the complex landscape of contracts.
Void contracts
Definition
A void contract is a contract that is fundamentally flawed from the outset and is considered legally invalid.
Such contracts lack the essential elements required for a valid contract, rendering them null and void.
Enforceability
Void contracts are unenforceable in a court of law.
This means that if contract disputes arise, neither party can legally compel the other to fulfill their obligations under the contract.
Examples
Common examples of void contracts include agreements that involve illegal activities, contracts with minors (in some jurisdictions), contracts obtained through fraud, and contracts with a purpose contrary to public policy.
Voidable contracts
Definition
A voidable contract, on the other hand, is a contract that appears valid on the surface but contains elements that make it susceptible to being canceled or voided.
One or both parties have the option to either affirm the contract or void it.
Enforceability
A voidable contract is still enforceable and legally binding until one of the parties decides to void it. If one party chooses to void it, the contract becomes null and void.
Examples
Voidable contracts often arise due to issues like misrepresentation, undue influence, coercion, or a party’s incapacity to consent.
For instance, a contract signed under duress or with false information may be voidable.
Key differences:
Validity
The primary distinction is that void contracts are inherently invalid and lack the essential elements of a contract.
In contrast, voidable contracts are initially valid but contain defects that make them vulnerable to cancellation.
Enforceability
Void contracts are unenforceable from the beginning, whereas voidable contracts are enforceable until one of the parties exercises their right to void the contract.
Reasons for voidance
Void contracts are void due to their fundamental flaws, such as illegality or incapacity.
Voidable contracts are voided because of specific defects, such as misrepresentation or coercion.
When is a contract voidable?
You might be wondering what makes a contract voidable.
A contract becomes voidable when certain specific circ*mstances or defects exist that give one or both parties the option to cancel or void the contract.
These circ*mstances or defects can undermine the voluntary and informed consent of one of the parties, rendering the contract potentially unfair or unjust.
Here are some common situations when a contract may be considered voidable:
Misrepresentation or fraud
If one party makes false statements or misrepresents essential facts that induce the other party to enter into the contract, the deceived party may have the right to void the contract.
This typically involves a material misrepresentation, meaning a false statement that significantly influenced the decision to enter into the contract.
Duress or coercion
When one party is forced, threatened, or pressured into signing the contract against their will, the contract may be voidable.
Duress or coercion undermines the voluntary nature of the agreement.
Undue influence
If one party has significant power or influence over the other, and this influence is used to compel the weaker party to enter into the contract, it can render the contract voidable.
Undue influence often occurs in situations involving relationships of trust, such as between family members, caregivers, or legal guardians.
Lack of capacity
Contracts may be voidable if one of the parties lacks the mental capacity, legal competence, or understanding to enter into a contract.
This could involve individuals who are minors, mentally incapacitated, intoxicated, or suffering from a cognitive impairment.
Unconscionable terms
When the terms of a contract are so one-sided, unfair, or oppressive that they shock the conscience, a court may consider the contract voidable.
Such terms can include exorbitant fees, hidden clauses, or terms that heavily favor one party over the other.
Mistake
In cases where both parties make a genuine mistake about a fundamental aspect of the contract, it may be voidable.
This often involves a mutual misunderstanding or a material misunderstanding of the contract’s terms.
It’s important to note that the party seeking to void the contract must take action promptly upon discovering the issue.
Delay in asserting the right to void the contract may result in a waiver of that right.
Additionally, the specific legal requirements may vary by jurisdiction, so it’s advisable to seek legal advice when encountering such situations to ensure compliance with local laws and regulations.
Voidable contract examples
Here are some real-life examples of voidable contracts to further illustrate the concept:
Example 1. Contract under duress
Imagine Sarah signs a contract with a construction company to renovate her home.
However, the construction company’s representative uses aggressive and threatening tactics and complex contract terminology to force Sarah into signing the contract.
Sarah feels she has no choice but to agree due to the duress exerted on her.
In this case, Sarah may have the option to void the contract because it was entered into under duress.
Example 2. Misrepresentation of product quality
John purchases a used car from a dealership based on the dealer’s representation that the vehicle has low mileage and has never been in an accident.
After a few weeks, John discovers that the car’s odometer had been rolled back and a previous accident wasn’t disclosed.
The misrepresentation of the car’s condition could make the contract voidable, and John might have the choice to cancel the contract.
Example 3. Contract with a minor
A bicycle shop sells a high-end bicycle to a teenager without realizing that the buyer is under the legal age of majority.
Later, the teenager decides they no longer want the bicycle and returns it to the shop.
Because minors typically lack the legal capacity to enter into binding contracts, the bicycle shop’s standardized contracts may be voidable at the discretion of the minor.
Example 4. Undue influence in a will
An elderly individual, Susan, creates a will, leaving her entire estate to her caregiver, Lisa.
Susan’s family becomes concerned that Lisa manipulated Susan into changing her will to benefit her unfairly.
If it can be proven that Lisa exercised undue influence over Susan in creating the will, it may be deemed voidable, and Susan’s previous will could be reinstated.
In each example of a voidable contract above, the contract is potentially voidable due to specific circ*mstances or defects that raise questions about the parties’ voluntary consent or fairness.
Voidable contracts provide a legal mechanism for parties to address situations where they may have been unfairly coerced, misled, or taken advantage of during the contract formation process.
How to void a contract
Voiding a contract is a legal process that typically involves specific steps and considerations.
The ability to void a contract depends on the circ*mstances and the grounds for voiding it.
Here is a general guide on how to void a contract:
Review the contract
Carefully examine the contract to identify any defects or exemption clauses that may make it voidable.
Determine the specific grounds for voiding the contract, such as misrepresentation, duress, undue influence, lack of capacity, or other applicable reasons.
Consult with an attorney
It’s advisable to seek legal counsel, especially if you are uncertain about the contract’s validity or the process for voiding it.
An attorney can provide guidance tailored to your specific situation and help you navigate the legal requirements.
Act promptly
Time is of the essence. In many cases, there are time limits or statutes of limitations that apply to voidable contracts.
Failing to act promptly may result in the waiver of your right to void the contract.
Communicate your intent
If you believe the contract is voidable due to a specific reason, communicate your intent to void the contract to the other party.
It’s often best to do this in writing, with clear and concise language outlining the grounds for voiding the contract.
Gather evidence
Collect any evidence that supports your claim for voiding the contract.
This may include documents, emails, correspondence, or witnesses who can attest to the circ*mstances that led to the contract’s formation.
Negotiate or mediate
Depending on the situation and the willingness of the other party, you may choose to negotiate a resolution or participate in mediation to reach an agreement regarding the contract’s voiding.
Mediation can be a more cost-effective and less adversarial option than going to court.
File a lawsuit
If negotiations or mediation fail and you believe that legal action is necessary, you can file a lawsuit seeking a court’s declaration that the contract is void.
Your attorney can guide you through the litigation process, including filing the appropriate legal documents and presenting your case in court.
Obtain a court order
To officially void the contract, you will typically need a court order or judgment that declares the contract null and void.
The court will review the evidence and arguments presented and make a determination.
Enforce the court’s decision
If the court grants your request to void the contract, both parties must comply with the court’s decision.
The terms of the court order will dictate the next steps, such as returning any property or funds exchanged as part of the contract.
How might a voidable contract become valid?
A voidable contract may become valid through a process known as ratification.
Ratification occurs when one or both parties to a voidable contract, who initially had the option to void it, decide to affirm the contract’s terms and continue with the agreement.
Here’s how a voidable contract can become valid through ratification:
Affirmative action
To ratify a voidable contract, one or both parties must take affirmative action to demonstrate their intent to continue with the contract.
This action typically involves acting as though the contract is valid, such as making payments or fulfilling contractual obligations.
Informed consent
The party or parties ratifying the contract must do so with full knowledge of the defects or circ*mstances that initially made the contract voidable.
They should be aware of their right to void the contract and willingly choose to proceed with it.
Express or implied ratification
Ratification can be either express or implied.
Express ratification occurs when the party explicitly states its intent to affirm the contract’s terms.
Implied ratification arises from the party’s conduct and actions that indicate they have accepted the contract’s validity.
No duress or undue influence
Ratification must occur without any further coercion, duress, or undue influence.
If the initial defect in the contract resulted from these factors, ratification would not be considered valid.
No new consideration required
Ratification generally does not require new consideration (additional benefits or obligations) beyond what was already agreed upon in the original contract.
Parties can reaffirm the contract’s terms without renegotiating the deal.
Clear intent
The intent to ratify the contract must be clear and unambiguous.
Courts typically look for evidence that the party acted voluntarily and knowingly to affirm the contract.
Time limitations
Some jurisdictions may impose time limitations on the ability to ratify a voidable contract.
Parties seeking to ratify should do so within a reasonable time frame.
Example of ratification
Let’s say Sarah entered into a contract with John to sell her antique piano.
Later, Sarah discovered that John had misrepresented the piano’s value, making her believe it was worth much less than it actually was.
Initially, Sarah had the option to void the contract due to misrepresentation.
However, after further consideration, Sarah decides to keep the contract in place.
She informs John of her decision to affirm the contract’s terms and proceeds with the sale, knowing the piano’s actual value.
In this case, Sarah’s affirmative action to proceed with the contract, with full awareness of the misrepresentation, constitutes ratification, making the initially voidable contract valid.
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Disclaimer
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