No one signs a contract with the intention of voiding it.
After all, contracts are an important show of faith between two parties, and without them, the world of business would stop functioning.
However, things don’t always go to plan, and sometimes changing circumstances mean an agreement is no longer serving you.
So, can you legally void it?
Key takeaways:
- A contract can be voidable due to legal issues, invalidity, or termination clauses.
- Voiding allows you to exit the agreement without breaching the contract.
- A voidable contract is an effective contract that can be voided in the future, while a void contract is already ineffective.
What is a voidable contract?
A voidable contract is any contract that’s currently operational and valid but has a mechanism within it that will allow one or both of the parties to make it void.
Let’s say applicant A signs an employment contract with you.
While this would guarantee elements of their employment, such as their salary and working hours, you wouldn’t want to pay them if they never actually turned up to work, so you’d likely include a section allowing you to void it if this was the case.
Breaching a contract is a serious legal issue, but voidable contracts allow you to terminate while remaining within the scope of the original agreement.
This means that drafting a voidable contract is vital if you expect there could be grounds for termination in the future.
Understanding the basic elements of a valid contract
It can sometimes be difficult to get your head around contract terminology, but it’s important to understand the essential elements of a legally valid contract before you consider whether you can make it null and void.
1. Mutuality
If you want a contract to be valid, both parties have to be mutually bound by it. Imagine if one of them could exit the agreement, while the other had no option to terminate it.
This would lack mutuality as the individual parties aren’t mutually bound.
2. Acceptance
Acceptance means both parties agree to everything in the contract.
It’s an important and final step in the contract negotiation process.
3. Legality
When drafting a contract, you must consider the rules and regulations in your industry, state, and country.
An agreement can only be legally enforceable if it complies with the laws in your jurisdiction.
5. Capacity
Contractual capacity is an important part of ensuring your agreement is valid. It refers to the ability of the parties to consciously enter a contract.
Children and people with severe mental disabilities, for instance, sometimes lack the capacity for an agreement to be legally binding.
Five ways to void a contract/make a contract ineffective
Now you can recognize the key elements of a valid contract, it’s time to learn how to void them.
Here are five of the most common ways to make a contract ineffective.
1. Prove its invalidity
Contracts are only effective if they’re legally valid.
This means that if your contract is missing any of the basic elements of a legal agreement, it’s automatically void and can’t be upheld in court.
If a contract doesn’t align with the laws of your state, for instance, it’s immediately ineffective.
You can also prove a contract is automatically invalid by looking at the circumstances in which it was signed.
Legal protections stop contracts signed under duress — that’s where coercive methods were used to get you to sign — from being valid, as well as contracts that were signed under false pretenses.
Once you’ve proved a contract isn’t valid, you don’t have to do anything else.
It is, by definition, void and is automatically terminated.
2. Use capacity to end it
Similarly, a contract will become void if one of the parties lacks the capacity to sign it.
However, this is slightly more complex than proving the agreement wasn’t valid due to duress, fraud, or illegality.
That’s because the legal age of majority varies according to state and country, while some types of contract can be signed by those under the age of majority.
Courts will often recognize that teenagers have the capacity to sign part-time employment contracts, for instance.
However, if you know a signatory didn’t have the capacity to sign the agreement, this can be an easy way to void a contract — no court will enforce an agreement made with a party without legal capacity.
3. Agree to mutually void it
A lot of the time, contracts simply outlive their usefulness for both parties.
Perhaps circumstances out of your control mean you can’t perform the tasks outlined in the agreement. In this case, both parties might mutually agree to void the contract.
To ensure you’re legally protected, mutual voiding of a contract should be a formal affair e.g. get it in writing that both sides have agreed to terminate.
4. Exercise the “cooling off” rule
This isn’t relevant for all contracts, but the “cooling off” rule can be a straightforward way to void a contract.
The Federal Trade Commission legally protects consumers by allowing them to cancel a sale for three days after the purchase was made, meaning they can get a full refund.
This means that some sales contracts can be voided during this “cooling off” period.
However, this isn’t the case for all sales contracts, never mind those that have nothing to do with sales.
Purchases made online, for instance, aren’t included in the rule.
If you want to use this technicality to void a contract, you’ll have to be confident your contract is actually covered by it.
5. Use the terms of a voidable contract
All these methods can be used for contracts that don’t have termination clauses within them.
However, many agreements are voidable by design, meaning you can use specific terms to end them.
These will often set out the exact conditions under which a contract can be voided.
If you agree to sell a grocer 200 apples a week for a certain price, for instance, you want to be able to exit the agreement if wholesale prices go higher than you’re selling them for.
You should be careful to ensure you’re terminating the agreement for a valid reason and are not breaching the termination clause.
If you have a voidable contract, you can theoretically avoid any legal disputes or bad blood between you and the other party.
This means that including a termination clause is often a key part of contract management best practices.
Voidable contract example
So, you now know some of the main ways you can void a contract — but what does this look like in the real world?
An example of a voidable contract would be if you signed an agreement to wash someone’s car every Sunday.
Your client might want to include a clause saying the contract is void if you do a bad job and leave their car dirty, while you could request a clause to void the contract if they move away.
A different type of voidable contract would be an agreement between a company and a minor outlining the minor’s employment.
While this would establish important aspects of the agreement, such as payment, the contract would be voidable as minors can usually exit such contracts without it being a legal breach.
Of course, most businesses work with much more complex and important legal agreements, but the principle of a voidable contract is the same regardless of value or importance.
Voidable contract vs. void contract
When talking about contracts, it’s easy to get confused between a voidable contract and a void contract.
If you want to know how to void an agreement, you must be clear about the differences.
A voidable contract is one that can be voided in the future, while a void contract is an agreement that’s already void.
Voidable contracts can become void, but void contracts will always be ineffective as they’re legally unenforceable.
Utilize contract management software to stay on top of things
As we’ve highlighted, there are lots of ways to void a contract.
Which of these is most applicable to you will depend on your circumstances and the context of the agreement.
With all this to consider, it’s easy to feel overwhelmed about your contracts and whether they’re voidable or not.
This is where contract management software can be helpful.
Rather than having to worry about storing your documents securely and locating your agreements at a later date, PandaDoc can take a lot of the legwork out of your hands, leaving you with more time to focus on the most important parts of contract management.
Disclaimer
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