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 circumstances 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 circumstances 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 circumstances or defects exist that give one or both parties the option to cancel or void the contract.

These circumstances 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 circumstances 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 circumstances 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 circumstances 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.

The party or parties ratifying the contract must do so with full knowledge of the defects or circumstances 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.

Ensure effective contracts with robust management software

Effective management is vital to creating a robust contract.

PandaDoc’s contract management software offers a user-friendly, comprehensive solution to streamline processes, enhance compliance, and reduce risks.

It empowers organizations of all sizes to optimize operations and build strong relationships through efficient contract handling.

Embrace the power of PandaDoc to unlock the full potential of your contracts and drive success.

Disclaimer

PandaDoc is not a law firm, or a substitute for an attorney or law firm. This page is not intended to and does not provide legal advice. Should you have legal questions on the validity of e-signatures or digital signatures and the enforceability thereof, please consult with an attorney or law firm. Use of PandaDocs services are governed by our Terms of Use and Privacy Policy.