What is a voidable contract? A comprehensive guide

10 May, 2024
paresh
Paresh @Boloforms
10 min read
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Introduction

Contracts serve as the backbone of many professional and personal interactions by clearly outlining the terms and conditions agreed upon by the involved parties. They are legally binding and are designed to provide clarity and security to relationships, whether in business or personal life.

However, there are instances when contracts can be disputed or deemed voidable due to various circumstances. This guide will explore the concept of voidable contracts, including what makes a contract voidable, and under what conditions they can be annulled, and will provide examples to illustrate these situations.

Important takeaways:

Important takeaways
  1. Voidable contracts provide a legal avenue for parties to end the agreement given specific circumstances.
  2. Factors such as miscommunication, undue influence, limited mental capacity, and coercion can render contracts voidable.
  3. Ratification serves to legitimize voidable contracts, wherein one or both parties, despite having the right to void the contract, choose to affirm it instead.

What is a voidable contract?

A voidable contract is a legally binding agreement between two or more parties that is susceptible to being declared invalid or void under certain circumstances. Unlike void contracts, which are inherently unenforceable from the beginning due to their nature (such as an illegal agreement), voidable contracts are initially valid but can be voided at the option of one or more parties involved.

Factors that may render a contract voidable include misrepresentation, fraud, undue influence, coercion, incapacity, or a mistake. If a party chooses to exercise their right to void the contract, they can typically do so by notifying the other party and seeking to undo the agreement.

Void vs. voidable contract: What’s the difference?

The main difference between void and voidable contracts lies in their enforceability and the circumstances under which they can be invalidated:

  1. Void Contract:
    • A void contract is fundamentally unenforceable from the outset due to its nature or subject matter.
    • It lacks legal effect and cannot be enforced by either party.
    • Examples include contracts for illegal activities, contracts entered into by parties lacking legal capacity (such as minors or individuals declared mentally incompetent), and contracts that violate public policy.
  2. Voidable Contract:
    • A voidable contract is initially valid and enforceable, but it can be declared void at the option of one or more parties involved.
    • It remains valid until the party with the option to void exercises their right to do so.
    • Circumstances that can make a contract voidable include misrepresentation, fraud, undue influence, coercion, incapacity, or a mistake.
    • If the party entitled to void the contract chooses to do so, they can typically terminate the agreement and seek to restore the parties to their pre-contractual positions.
    • However, if the voidable contract is ratified by the parties after the issue arises, it becomes valid and enforceable.

In summary, a void contract is inherently unenforceable, while a voidable contract is initially enforceable but can be voided under specific conditions.

Key differences

Key Differences

Reasons for voidance

Contracts can be voided for a variety of reasons, including misrepresentation, fraud, undue influence, coercion, mistake, lack of capacity, illegality, unconscionability, duress, and mutual agreement. Misrepresentation involves false statements or omissions that lead one party to enter the contract. Fraud entails intentional deception for unlawful gain. Undue influence occurs when one party exerts excessive pressure, while coercion involves threats or force. Mistakes in understanding key contract elements may render it voidable, as can agreements made by parties lacking capacity or engaging in illegal activities. Contracts violating public policy or deemed unconscionable can also be voided.

When is a contract voidable?

A contract is considered voidable when certain conditions exist that give one or more parties the right to invalidate or void the contract if they choose to do so. These conditions typically involve factors that undermine the voluntary and informed consent of the parties at the time of contract formation. Examples of circumstances that can make a contract voidable include misrepresentation, fraud, undue influence, coercion, mistake, lack of capacity, illegality, unconscionability, duress, and mutual agreement. If any of these factors are present and a party decides to exercise their right to void the contract, they can typically do so by notifying the other party and seeking to undo the agreement.

Voidance of a contract can occur for various reasons, including:

various reasons for voidance of a contract

Misrepresentation or Fraud:
Misrepresentation occurs when one party provides false information or conceals material facts, leading the other party to enter the contract under false pretenses. Fraud involves intentional deception to secure an unfair advantage, often through false statements or misleading conduct. In both cases, the deceived party may have the right to void the contract due to the lack of genuine consent.

Undue Influence:
Undue influence occurs when one party exerts significant pressure or influence over the other, exploiting a position of trust, authority, or confidence to manipulate the terms of the contract to their advantage. This imbalance of power can undermine the voluntariness of the agreement, rendering it voidable at the option of the influenced party.

Duress or Coercion:
Duress or coercion involves the use of threats, intimidation, or force to compel someone to enter into a contract against their will. When one party is coerced into agreement due to fear of harm or loss, the contract is considered voidable. The coerced party has the right to void the contract if they can demonstrate that their consent was obtained under duress.

Mistake:
Mistake occurs when one or both parties have a misunderstanding or error regarding a fundamental aspect of the contract, such as the subject matter, terms, or key facts. If the mistake is material and undermines the parties' genuine consent, the contract may be voidable by the mistaken party.

Lack of Capacity:
Contracts entered into by individuals lacking legal capacity, such as minors, persons declared mentally incompetent, or individuals under the influence of drugs or alcohol, may be voidable. These parties may lack the legal capacity to fully understand the terms and consequences of the contract, rendering it voidable at their option.

Illegality:
Contracts that involve illegal activities or violate public policy are void and unenforceable from the outset. If the purpose or subject matter of the contract is illegal or against public policy, the contract is void ab initio (from the beginning) and cannot be enforced by either party.

Mutual Agreement:
If both parties mutually agree to terminate the contract, it can be voided by mutual consent. In such cases, the parties voluntarily decide to release each other from their contractual obligations, effectively rendering the contract voidable through mutual agreement.

Voidable contract examples

Here are a few instances from real life that exemplify voidable contracts, providing a clearer understanding of the concept.

Example 1. Contract under duress

Imagine John is under severe financial strain and is struggling to make ends meet. A car dealership takes advantage of his vulnerable situation by pressuring him into signing a purchase agreement for a vehicle he can't afford.

Despite John's protests and discomfort, the salesperson uses intimidating tactics and misleading information to coerce him into the deal. As a result, John feels compelled to sign the contract against his better judgment.

In this scenario, John could potentially void the contract due to undue influence exerted upon him by the dealership.

Example 2. Misrepresentation of product quality

Anna purchases a house from a real estate agent who assures her that the property is in excellent condition and has recently undergone thorough inspections with no significant issues found. Relying on this representation, Anna signs the purchase agreement and moves into the house.

However, shortly after moving in, Anna discovers serious structural problems that were concealed during the sale. It turns out that the real estate agent was aware of these issues but deliberately withheld the information to secure the sale.

The misrepresentation of the property's condition could render the contract voidable, and Anna might have grounds to rescind the contract due to fraudulent concealment of material facts by the real estate agent.

Example 3. Contract with a minor

A technology store sells a gaming laptop to a 16-year-old student who presents themselves confidently and convincingly as an adult. The store, unaware of the buyer's true age, completes the sale and issues the receipt.

Shortly after purchasing the laptop, the student's parents discover the transaction and insist on returning the laptop, as they deem it inappropriate for their child and believe it was purchased without their consent.

Given that minors usually lack the legal capacity to enter into binding contracts, the store's sale contract with the student may be voidable at the discretion of the minor or their legal guardians. As a result, the store may need to accept the return of the laptop and refund the purchase price.

Example 4. Undue influence in a will

An aspiring artist, Jack, enters into a contract with a well-known gallery to exhibit and sell his artwork. However, Jack later discovers that the gallery misrepresented the terms of the agreement, including the commission rates and the duration of the exhibition.

Feeling deceived and taken advantage of, Jack seeks legal advice and learns that the misrepresentation by the gallery could render the contract voidable. If it can be proven that the gallery intentionally misled Jack to secure an unfair advantage, Jack may have the option to void the contract and seek alternative representation or recourse for damages.

How to void a contract?

How to void a contract?

Assess the Contract:

  1. Review the contract thoroughly to identify any flaws, errors, or clauses that may render it voidable.
  2. Determine the specific grounds for voiding the contract, such as misrepresentation, coercion, lack of capacity, or other applicable reasons.

Seek Legal Advice

  1. Consult with a qualified attorney who can offer personalized guidance based on your circumstances.
  2. An attorney can help you understand your rights, obligations, and the legal process for voiding the contract.

Take Prompt Action

  1. Time is critical. Act promptly to avoid waiving your right to void the contract, as there may be time limitations or statutes of limitations.
  2. Communicate your intent to void the contract to the other party in a clear and timely manner.

Gather Supporting Evidence

  1. Collect any relevant evidence that supports your claim for voiding the contract, such as documents, correspondence, or witness statements.
  2. Evidence may include proof of misrepresentation, coercion, or other factors that invalidate the contract.

Consider Negotiation or Mediation

  1. Explore options for resolving the dispute amicably through negotiation or mediation.
  2. Negotiation or mediation can be cost-effective and less adversarial than litigation, potentially leading to a mutually agreeable solution.

File a Lawsuit if Necessary

  1. If negotiations fail and legal action is warranted, consider filing a lawsuit seeking a court declaration that the contract is void.
  2. Your attorney can assist you in preparing and filing the necessary legal documents and representing your interests in court.

Obtain a Court Order

  1. To officially void the contract, you will likely need a court order or judgment declaring the contract null and void.
  2. The court will review the evidence and arguments presented and make a decision based on the merits of the case.

Enforce the Court's Decision

  1. Once the court grants your request to void the contract, both parties must comply with the court's decision.
  2. The terms of the court order will dictate any further actions required, such as returning property or funds exchanged under the contract.

How might a voidable contract become valid?

Transforming a Voidable Contract into Validity: The Process of Ratification

Affirmative Action

  1. Ratification of a voidable contract necessitates one or both parties to take affirmative steps indicating their intent to uphold the contract's terms.
  2. Actions such as making payments or fulfilling contractual obligations demonstrate the commitment to continue with the agreement.

Informed Consent

  1. Parties ratifying the contract must possess full awareness of the defects or circumstances that rendered the contract voidable initially.
  2. They should be cognizant of their right to void the contract and consciously choose to proceed with it.

Express or Implied Ratification

  1. Ratification may manifest either expressly or implicitly.
  2. Express ratification involves the explicit declaration of intent to affirm the contract's terms, while implied ratification arises from conduct indicating acceptance of the contract's validity.

Absence of Duress or Undue Influence

  1. Ratification must occur free from coercion, duress, or undue influence.
  2. If the initial defect stemmed from these factors, ratification would not be deemed valid.

No New Consideration Required

  1. Generally, ratification does not demand new consideration beyond what was originally agreed upon in the contract.
  2. Parties can reconfirm the contract's terms without renegotiation.

Clear Intent

  1. The intent to ratify the contract must be explicit and unequivocal.
  2. Courts seek evidence demonstrating voluntary and knowing affirmation of the contract.

Time Limitations

  1. Some jurisdictions impose time constraints on ratifying a voidable contract.
  2. Parties should ratify within a reasonable timeframe.

Example of Ratification


Consider Sarah, who entered a contract with John to sell her antique piano. Discovering that John misrepresented the piano's value, initially, Sarah had the option to void the contract due to misrepresentation.

However, after deliberation, Sarah decides to uphold the contract. She notifies John of her choice to affirm the contract's terms and proceeds with the sale, fully aware of the piano's actual value.

Sarah's affirmative action, with complete knowledge of the misrepresentation, constitutes ratification, rendering the initially voidable contract valid.

Ensure effective contracts with BoloForms Signature

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Tailored to meet the needs of businesses of any scale, BoloForms Signature enables organizations to optimize workflows and foster enduring partnerships through effective contract management. Harness the capabilities of BoloForms Signature to unleash the true potential of your contracts and propel your organization toward success.

How to void a document in BoloForms Signature?


To void a document in BoloForms Signature, follow these steps:

How to void a document in BoloForms
  1. Login to your BoloForms account
  2. Click on the documents option from your dashboard
  3. Click on the three dots(actions button) on the document that you want to void
  4. Click void document

Conclusion

A voidable contract is a legal agreement that is initially binding and enforceable but is subject to being voided or invalidated by one or both parties due to certain defects, such as misrepresentation, duress, undue influence, lack of capacity, or other legal grounds.

In this comprehensive guide, we've explored the key characteristics of voidable contracts, including their formation, grounds for voidability, legal implications, and the process of voiding or ratifying them.

In conclusion, By recognizing the potential for a contract to be voidable and understanding the steps involved in voiding or ratifying it, parties can make informed decisions to uphold the integrity of their contractual relationships and justice within the legal framework.

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