Voidable Contract: Definition and How Does It Work

Key Takeaway:

• A voidable contract is an agreement that can be legally cancelled or voided by one party due to certain circumstances, such as coercion or fraudulent information.
• Examples of voidable contracts include contracts with minors, contracts made under duress or coercion, and contracts with fraudulent information.
• When a voidable contract is cancelled, the parties must engage in the process of rescission and restitution, which involves returning any property or funds exchanged between the parties.
• Legal remedies for breaching a voidable contract include monetary damages and equitable remedies such as specific performance or injunctions.

Have you ever wondered what voidable contracts are and how they work? This article explains voidable contracts, their validity and examples of situations where it could be used. You'll understand this type of contract better and discover when it is best to implement one.

What is a Voidable Contract?

A voidable contract is a type of contract that can be legally enforced, but one or both parties have the option to invalidate or cancel the contract. This can occur due to legal incapacity, duress, fraud, undue influence, or misrepresentation. Voidable contracts are different from void contracts, which cannot be enforced legally from the beginning.

When a contract is voided, it is as if it never existed before, and any obligations or payments made under the contract must be reversed. Voiding can be done by one or both parties involved, depending on the reason for voiding. For example, if the contract was obtained through fraud, the party that was defrauded can void the contract. However, if a party is incapacitated, a guardian or court may need to void the contract on their behalf.

It's important to note that certain types of contracts, such as contracts with minors or contracts signed under duress, are voidable but still enforceable until they are voided. This means that until a contract is legally voided, all parties are bound by its terms and conditions.

According to LegalMatch, "Many states require that voidable contracts be voided within a certain period of time, ranging anywhere from a couple of weeks to several years, depending on the type of contract involved."

Examples of Voidable Contracts

Voidable contracts refer to agreements that can be legally enforced by one party but can be voided by the other party. These contracts are usually formed under certain conditions that give one party the right to cancel the agreement. Here are some examples of voidable contracts:

               Contract Example       Conditions for Contract to be Voidable                       Contract with a minor       The minor has the right to cancel the contract before reaching the age of majority.                 Contracts made under duress or coercion       The party who is pressured into signing the contract has the right to void the agreement.                 Contracts made under fraud or misrepresentation       The party that was deceived or misled has the right to cancel the contract.          

It is important to note that voidable contracts are different from void contracts, which are contracts that were never legally enforceable in the first place. Additionally, if a voidable contract is not voided by the party with the right to cancel it, then the contract becomes binding and enforceable by both parties.

A unique aspect of voidable contracts is that even though one party has the right to cancel the agreement, the other party may have already changed their position or incurred some costs in anticipation of the contract being fulfilled. This can lead to legal disputes and the need for courts to determine the appropriate consequences of voiding the contract.

According to the legal website Nolo, one true fact about voidable contracts is that they are enforceable until they are voided by the party with the right to cancel it.

How Voidable Contracts Work

Contracts that are voidable have the potential to be canceled by one or both parties involved due to one or more reasons such as misrepresentation, undue influence, or fraud. The contract remains in force unless one party takes action to cancel it. The voidable contract is legally binding, but its continuation depends on the choices made by the parties involved. It is crucial to understand the terms of the contract and the circumstances under which it becomes voidable, to avoid legal and financial implications.

When a voidable contract is signed, one or both parties have the option to either cancel the contract or continue as if nothing happened. The party seeking to cancel the contract must carry the burden of proof, as they must prove beyond a reasonable doubt to the court that the contract is voidable due to fraud, misrepresentation, or undue influence. The court may cancel the contract if it determines that the accusations made by the party holding to void the contract holds merit.

It's essential to be aware of the possible outcomes before entering into a voidable contract. One of the significant differences between a voidable and void contract is that a void contract has no legal effect from the outset, while a voidable contract is legally binding, pending cancellation. Understanding this difference can help parties make informed decisions.

Pro Tip: Seek legal counsel before signing a voidable contract to avoid any future disputes or financial damages.

Legal Remedies for Breaching a Voidable Contract

Legal options available for parties in cases of breach of a voidable contract include seeking compensation, rescission, and/or restitution under the law. If a party to the contract was fraudulently induced to enter into it or it was made under duress, the contract can be rescinded and the innocent party can also seek restitution.

The innocent party can bring a legal action seeking compensation for damages suffered as a result of the breach of the contract. In such cases, the court may award compensatory damages, punitive damages, or nominal damages as appropriate. This provides parties with legal remedies in situations where the other party is in breach of the contract.

In addition, parties can also seek specific performance as a remedy, which requires performance of the contractual obligations stated in the agreement. This remedy is usually applied in cases where other legal remedies are inadequate and the contract is of a unique nature. Specific performance may require the party in breach to deliver goods or perform services that were initially agreed upon.

A recent case involved a breach of a voidable contract where one party had fraudulently induced the other to enter into the contract. The court rescinded the contract and ordered the restitution of amounts paid by the innocent party. The innocent party was also awarded compensation for losses incurred as a result of the breach. This demonstrates the legal options available to parties in cases of breach of a voidable contract.

Five Facts About Voidable Contract Definition: How It Works, With Examples:

• ✅ A voidable contract is a legally binding agreement that can be rendered invalid at the option of one party. (Source: Investopedia)
• ✅ A contract can be voidable if one party is incapacitated, such as being under the influence of drugs or alcohol, at the time of signing. (Source: LegalMatch)
• ✅ Undue influence or duress can also make a contract voidable. (Source: LawDepot)
• ✅ Voidable contracts can be affirmed if the injured party chooses to do so, or they can be rescinded, meaning they are canceled and no longer enforceable. (Source: RocketLawyer)
• ✅ Examples of voidable contracts include those signed by minors or contracts signed under fraud or misrepresentation. (Source: UpCounsel)

FAQs about Voidable Contract Definition: How It Works, With Examples

What is a voidable contract?

A voidable contract is a legal agreement that one party may choose to either enforce or void, at their discretion. This type of contract becomes voidable typically when one party has been coerced, deceived, or misled into entering into the agreement.  

How does a voidable contract work?

If a contract is deemed voidable, the party who was coerced or misled has the option to either enforce the terms of the agreement or void it entirely, depending on the circumstances of how the contract was formed.  

What are some examples of voidable contracts?

Some examples of voidable contracts include agreements entered into by minors, contracts formed under duress or coercion, contracts entered into under fraudulent circumstances, and agreements made between parties lacking capacity.  

Can a contract be voidable if both parties agree to it?

Yes, a contract can still be voidable even if both parties agree to it, depending on the circumstances under which the agreement was made. For example, if one party effectively coerced or deceived the other into entering into the agreement, it may still be voidable even if the parties agreed to it.  

What is the difference between void and voidable contracts?

A void contract is one that is deemed entirely unenforceable or invalid from the outset, while a voidable contract is one that is initially enforceable but may be voided by one party under certain circumstances.  

What are the consequences of a voidable contract being voided?

If a voidable contract is ultimately voided by one party, the agreement becomes unenforceable and any obligations that were created under the contract are no longer binding on either party. Additionally, any payments made or benefits received under the voided contract may be required to be returned or otherwise compensated for.