What Is a Voidable Contract?
A voidable contract is a formal agreement between two parties that may be rendered unenforceable for any number of legal reasons, which may include:
- Failure by one or both parties to disclose a material fact
- A mistake, misrepresentation, or fraud
- Undue influence or duress
- One party's legal incapacity to enter a contract (e.g., a minor)
- One or more terms that are unconscionable
- A breach of contract
The legal right to void such a contract is known as disaffirmance.
Key Takeaways
- A voidable contract is one that can be canceled or altered for qualified legal reasons.
- Not all contracts are voidable; legal precedent must exist to absolve responsibility.
- Finding a defect in a contract is a common way to void that contract.
- The simplest way to void a contract is for both parties to agree that voiding is the best option.
How Voidable Contracts Work
A voidable contract is initially considered legal and enforceable but can be rejected by one party if the contract is discovered to have defects. If a party with the power to reject the contract chooses not to reject the contract despite the defect, the contract remains valid and enforceable.
Most often, only one of the parties is adversely affected by agreeing to a voidable contract in which that party fails to recognize the misrepresentation or fraud made by the other party.
Voidable vs. Void Contracts
A voidable contract occurs when one of the involved parties would not have agreed to the contract originally if they had known the true nature of all of the elements of the contract prior to original acceptance. With the presentation of new knowledge, the aforementioned party has the opportunity to reject the contract after the fact. Alternatively, a contract is voidable when one or both parties were not legally capable of entering into the agreement—for example, when one party is a minor.
In contrast, a void contract is inherently unenforceable. A contract may be deemed void should the terms require one or both parties to participate in an illegal act, or if a party becomes incapable of meeting the terms as set forth, such as in the event of one party’s death.
A contract that is deemed voidable can be corrected through the process of ratification. Contract ratification requires all involved parties to agree to new terms that effectively remove the initial point of contention that was present in the original contract.
If it was later discovered that one of the parties was not capable of entering into a legally enforceable contract when the original was approved, for example, that party can choose to ratify the contract when they are deemed legally capable.
A contract may be ruled null and void should the terms require one or both parties to participate in an illegal act, or if one party becomes incapable of meeting the contract terms.
Examples of Potentially Voidable Contracts
Certain smartphone apps, categorized as freemium apps, begin as free downloads but later allow for in-app purchases costing real money. Freemium apps geared toward children may result in a minor accepting the terms and conditions associated with gameplay, though these terms may allow for the later solicitation of in-app purchases. This type of activity led to a lawsuit against Apple (AAPL) in 2012, which suggested the transactions were part of a voidable contract.
In a more recent example, a 2018 New Mexico lawsuit alleged that solar power installer Vivint Solar defrauded customers by binding them to 20-year contracts that required consumers to purchase the electricity generated by solar systems placed on their homes at rates that increase by more than 72% during the 20-year period. The lawsuit sought to render all Vivint's prior contracts with homeowners as voidable if affected customers wanted to cancel them. But that was not included in a settlement agreement between the New Mexico attorney general and Vivint in May 2021.
FAQs
A voidable contract is a contract where one party has the ability to void the contract if they desire. An example of a voidable contract would be a contract with a minor. A minor can enter a contract but later choose to get out of it. The other party cannot enforce it against a minor once they choose to void it.
What is a voidable contract with an example? ›
Alternatively, a contract is voidable when one or both parties were not legally capable of entering into the agreement—for example, when one party is a minor. In contrast, a void contract is inherently unenforceable.
What is an example of a voidable contract agreement? ›
An agreement is a promise or arrangement between two or more parties to do, or not do, something. It's usually informal and sometimes unwritten (but not always). Some examples of agreements include a letter of intent, or a confidentiality agreement that precedes a commercial discussion.
What is the voidable contract rule? ›
A contract that is voidable is otherwise a valid contract but the obligations can be avoided for certain reasons permitted by law (e.g., duress, lack of capacity). The party with the capacity to void the contract can choose to ratify the contract and perform the obligations thereunder.
What is an example of a void contract would clearly be? ›
Question: An example of a void contract would be:a contract for the sale of land to a competent adult. a contract to buy cocainea contract for the sale of alcohol to a competent adult. a contract formed for an illegal purpose. a contract entered into by a minor without his or her parents' consent.
What is the best definition of a voidable contract quizlet? ›
A voidable contract is one which initially appears to be valid, but is subject to cancellation by a party to the contract who is believed to have acted under some kind of disability.
What is an example of a voidable contract in real estate? ›
Most sales contracts are voidable contracts because they contain contingency clauses. For example, remember that blue house you wanted to buy? Well, you signed a contract for a blue house, but now you show up and the house is green! This is VOIDABLE, not VOID!
What is the meaning of voidable? ›
capable of being nullified or invalidated. Law. capable of being made or adjudged void.
What is an example of a valid contract? ›
Examples of Valid Contract:
Example 1: Party A agrees to sell Rice crops to Party B. Both parties agree that Party A can cut the crops and take them, once he pays the agreed price. Every kind of movable property is good except for cash and actionable claims.
What is an example of a null and void contract? ›
Let's say you signed a contract to supply a restaurant with a certain amount of fresh abalone, but you can't fulfill your obligation because a ban on harvesting abalone was subsequently passed. In this case, the contract may be considered null and void because your obligation became impossible to fulfill.
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.
Which mistake is likely to be voidable? ›
Mutual mistake is more likely to make a contract voidable than is unilateral mistake. In order for a unilateral mistake to make a contract voidable, either the nonmistaken party must have caused or had reason to know of the mistake, or enforcement of the contract must be unconscionable.
What is a voidable contract consideration? ›
At most, one party will be bound to the contract but other parties have the option to void the contract by rejecting it. Contracts are usually voidable due to: undue influence, duress, misrepresentation or fraud. Also, depending on the circ*mstances, a court may allow a voidable contract to be rewritten or amended.
What is voidable agreement with an example? ›
A voidable contract is a contract where one party has the ability to void the contract if they desire. An example of a voidable contract would be a contract with a minor. A minor can enter a contract but later choose to get out of it. The other party cannot enforce it against a minor once they choose to void it.
How can a voidable contract be enforced? ›
As per section 2 sub-clause (i) of Indian Contract Act 1872, a Voidable Contract is an agreement that can be enforced by the law by one party but not at the other parties option.
What are four things that might make a contract voidable? ›
The following circ*mstances can deem a contract voidable:
- A party was forced or threatened to sign the contract.
- A party was under undue influence.
- A party was mentally incompetent, such as a minor or a person suffering from mental illness.
- A breach of contract occurred.
- Mistakes were made by both parties.
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. Neither of the parties can enforce a void contract, while one of the parties can enforce a voidable contract if they choose to.
Which is the best example of rescission of a contract? ›
The parties to a contract may agree to mutual rescission. For example, two contracting companies agree to a contract to work together on a building project, but both lose many of their employees at the same time. They mutually decide to rescind the contract to rectify the situation.
Which of the following contracts are usually voidable? ›
Which of the following contracts are usually voidable? Contracts entered into as a result of fraud, duress, or undue influence.
