What Is a Voidable Contract?
Introduction
The reason individuals and businesses enter into contractual agreements is to protect themselves and ensure they receive the promised payment or service in full. Naturally, it is only fair to expect that every contract you enter into is legal and enforceable. If the other party fails to fulfill their duties, the contract will help you get paid or get your money back.
However, not all contracts are enforceable. You may not know this when signing a contract, but several factors can influence its legality. For example, imagine that one party fails to expose all relevant information or is intoxicated when signing the agreement. That makes for a voidable contract. Let’s talk about voidable contracts definition and how to deal with these contracts.
What Is Voidable Contract?
A voidable contract is one that is not entirely enforceable or legal, at least for one party that entered into the agreement. This usually results from entering into the agreement without full informed consent. As such, the contract can become void if the affected party chooses to void it. Similarly, the affected party may continue treating the contract as legally enforceable.
Different factors influence the enforceability of any contract. All of them concern the way the parties entered into it. Let’s look at the examples of voidable contracts. For instance, if one or both parties were under the influence of alcohol or illegal drugs, the contract can be voidable. If one or both parties were under 18, the contract could be met with the same fate. Fraud, deceit, and misinformation can all have the same effect on a contract. The following section will discuss these factors in detail.
When Is a Contract Voidable?
Here are some factors that will have an impact on the legality and enforceability of the contract; a contract may be voidable if these factors are present, potentially rendering it voidable:
Being underage. Each jurisdiction has rules regarding the age at which you can enter legal agreements. What happens to a contract entered into by an underage person may also depend on the jurisdiction. However, generally speaking, a person under 18 can usually void any contract they entered into, with some exceptions.
Intoxication. Signing a contract under the influence of alcohol or illegal drugs may deem it a voidable contract.
Mental incapacity. Similar to intoxication, not being in your right mind may make your contract voidable. That may happen because of an injury, the use of medication, or a mental disability.
Fraud and misrepresentation. A contract is voidable if one party enters it without all relevant information. That often happens when the other party wants to take advantage of the situation. The lack of information allows the victim to void the contract.
Duress. Entering into a contract because of coercion is the same as doing so against your will. A contract that someone coerced you into signing by threatening you or using other tactics would be voidable.
Undue influence. If you had a relationship with the other party before signing the contract and they pressured you to do so, you may be a victim of undue influence. An agreement you were forced into can become a voidable contract.
Types of Voidable Contracts
You may be dealing with a voidable contract for some reason, as seen in the section above. All of them concern the inability of a party to give their full informed consent when signing the contract, be it because of their age, threat of consequences, or other reasons. Any voidable contract can fall into one of these two types:
Signed without capacity: Contracts are voidable if they are signed by someone legally unable to enter into an agreement, such as a minor or someone intoxicated or mentally unfit at the time of signing.
Signed without mutual consent: Contracts may be voided if signed without informed and genuine consent from all parties, such as those resulting from fraud, coercion, threats, or power imbalance in a relationship.
Ratification of a Voidable Contract
You can correct a voidable contract through ratification. This process allows the parties to make their voidable contract legally binding and enforceable. To do that, both parties must agree to be bound by it.
Then, they have to correct the issues that made the contract voidable in the first place. For instance, if one party signed the agreement as a minor, they can sign it again once they turn 18 and ratify it. In the case of fraud, the misinformed party must be adequately informed to provide their consent.
What Is a Void Contract?
A void contract is an agreement that is not legally enforceable. Unlike a voidable contract, the parties to a void contract have no discretion or choice regarding what happens. The contract is said to be void “ab initio” — a Latin phrase meaning “from the beginning."
Thus, the question arises: what makes a contract void? The answer lies in circumstances such as lack of capacity or mutual consent where the legalities of a valid contract are not met from the onset, rendering it unenforceable. That means the contract is treated as having been invalid from the beginning. It is as if the contract had never been created, which means:
No rights and obligations arising under the agreement.
No title to the property passing under the contract.
When Is a Contract Void?
A contract will be found to be void in the following situations:
Illegality. A contract will be treated as void and not enforceable where the subject matter of the contract would involve illegal conduct. As an example of void contract, you could not enforce a contract under which the other party is required to commit a criminal act.
Public policy. Similar to illegality, a contract is usually void if its subject matter contradicts public policy.
Mistake. Some types of mistakes by one or both parties may render a contract void. For example, a mistake regarding the other party's true identity or the subject matter of the contract could be sufficient to render the contract void.
What Should You Do if You Have a Voidable or Void Contract?
It can be difficult to establish clearly — and prove — that a contract is voidable or void. The facts and legal issues are often heavily disputed and usually arise as part of a broader contract dispute — perhaps a party is alleged not performing the contract properly or wants to get out of its obligations.
It's essential to have good evidence if you think there are good reasons why your contract might not be enforceable (or if you are on the other side and you are disputing a claim that the contract is void). Ensure you retain a copy of the contract and details of any correspondence before and after it was made. Collect as much evidence as possible about the event or circumstances being argued to make the contract unenforceable. One valuable tool in your legal arsenal could be the use of a demand letter outlining your claims about the contract's unenforceability and stating your terms for resolution.
You might be right that your contract is unenforceable because it is voidable or void. But it’s essential to be as sure as you can — and get expert advice if you need it — before taking further action. If you get the analysis wrong — you could end up making the situation worse.
Conclusion
Understanding voidable contracts is vital for safeguarding business interests. Consulting trusted legal resources and lawyers is crucial, given their role in mitigating risks by ensuring compliance with relevant laws and offering valuable insights into contracts. Their expertise aids organizations in navigating potential legal pitfalls, making agreements enforceable and more beneficial.