Voidable Contract (Definition, Examples, Grounds And Enforceability)

What is a voidable contract?

Based on what grounds is a contract voidable?

Is a voidable contract enforceable?

What are some examples of a voidable contract?

In this article, we will tackle these points and more so you know all there is to know about voidable contracts.

Are you ready?

Let’s get started…

What is a voidable contract

A voidable contract is a legal contract that can be voided for various reasons at the option of one of the contracting parties called the aggrieved party.

When we refer to the term voidable contract, we are referring to the possibility for a valid contract to be voided based on irregularities in its formation or its scope.

For example, the grounds for a voidable contract can be:

  1. Pressure and coercion
  2. Undue influence 
  3. Misrepresentation 
  4. Fraud 
  5. Induced mistake 
  6. Lack of legal capacity 
  7. Unconscionable and disproportionate terms 

Generally speaking, we are in the presence of a voidable contract when a contracting party would have not signed the contract if it was not due to the acts or omissions of the other party such as fraud or misrepresentation.

At first, the parties consider the contract as valid and enforceable.

However, following the discovery of facts or information, the aggrieved party discovers grounds to void the contract and consider himself not to be bound to its terms.

When we have grounds for a voidable contract, it’s one party to the contract that will have grounds to void the contract due to the actions of the other. 

Both parties to a contract can rarely have valid arguments to void the same.

When confronted with a voidable contract, at his or her option, the aggrieved party can either accept or reject the contract. 

Grounds of a voidable contract 

Contracts can become voidable for many reasons.

Here are some grounds that contractual parties may invoke to void a contract:

  1. A contracting party purposely does not provide full, complete and truthful information to the other party when entering into a contract
  2. A party was induced in such a way as to make a mistake on the grounds or objective of the contract being signed
  3. Misrepresentation by one party on important and material aspects of the contract
  4. When a person unduly influences a friend or someone they know to sign a contract
  5. When a person is forced to sign a contract under coercion, pressure or duress
  6. When there is a significant disproportion in the obligations of the parties

These are just a few examples.

There may be so many reasons why a contract is voidable.

If you believe that you have discovered grounds to void a contract, you should consult a contract attorney to guide you on the steps you need to take.

A voidable contract not rejected in a reasonable period of time following the discovery of the grounds may become legally enforceable.

Accepting a voidable contract

After signing a contract, even though a contracting party may discover defects giving it sufficient grounds to void the contract, he or she may choose to accept the terms of the contract nonetheless.

For example, imagine that due to the misrepresentation of a party, you enter into a contract that you would not have signed otherwise.

Although you discover the extent of misrepresentation made by the other party, you decide that you want to continue remaining bound by the terms of the contract.

In such a case, by accepting the contract or continuing to comply with its terms, you become bound to the contract.

That’s when a voidable contract is ratified and legally enforceable.

Repudiating a voidable contract

A party signing a contract with voidable grounds can repudiate the contract.

In other words, the party can reject the contract and argue that it is not bound by the terms of the contract due to the voidable grounds discovered.

Repudiating a contract may potentially lead to a contractual dispute between the contracting parties in case one party argues they are not bound by the contract terms and the other party argues to the contrary.

If the parties are unable to accept the contract, modify its terms or cancel the contract amicably, then they may end up in a legal dispute.

If a party feels strongly that the contract is voidable or perhaps the other party does not have legal grounds to void the contract, the party can file a lawsuit against the other for breach of contract.

It’s not a pleasant situation to be in when this happens.

If it does, you should consult with an attorney to legal advice or representation.

Void vs voidable contract

Is there a difference between a void contract and a voidable contract?

Although the terms sound similar, they are very different in contract law.

void contract is legally unenforceable and never was to start with.

If the contract is legally unenforceable, a contracting party cannot legally demand the execution of the other party’s obligation.

For example, a contract is void when its object is illegal.

If you sign a contract with someone to rob a bank, that contract is void and legally never enforceable.

A voidable contract is a contract that is initially considered enforceable by the contracting parties.

However, following the execution of the contract, a party discovers grounds to void the contract.

The grounds are either related to the irregular or defective formation of the contract or perhaps the consent of a party was vitiated due to pressure, coercion, misrepresentation or fraud.

Unlike a void contract, the aggrieved party in a voidable contract can choose to accept the contract and demand its enforcement.

Examples of void contracts

Here are some examples of void contracts:

  1. Sale of drugs
  2. Prostitution in many jurisdictions 
  3. Any act considered a crime under the law
  4. Contract signed with a minor
  5. Contract with objects violating the public order 

What are some examples of a voidable contract?

Examples of voidable contracts

Voidable contracts are those that start as valid and then may become voidable.

Here are some examples:

  1. A contract signed by misleading the other party
  2. A contract signed by due to acts of fraud
  3. Contract signed with someone when they were temporarily incapacitated 

Generally, contracts are voidable either due to defective formation conditions or the consent of a contracting party was vitiated.

Let’s look at these two elements in order.

Voidable contract based on formation defects

If a contract does not respect the statutory requirements for its formation, the contract may be voidable.

We’ve written an article on the essentials of a valid contract outlining how a contract is legally formed.

Essentially, for a contract to be legally binding, you need:

  1. Offer
  2. Acceptance
  3. Consideration
  4. Object
  5. Legal capacity

If there is a defect in any of these formation features, the contract will be voidable.

For example, if you enter into a contract with someone who is mentally incapacitated, you will fail to observe the condition of legal capacity.

A contract signed with someone who did not have legal capacity will not be recognized as a valid and legally binding contract.

As such, the contract is voidable on the grounds of defects of its formation.

Voidable contract based on vitiated consent

A contract can also be voidable if the consent of a contracting party was vitiated.

What does it mean for the consent to be vitiated?

It means that a contracting party, due to acts of misrepresentation or fraud of the other as an example, induced a party to sign a contract although that party would have not contracted had complete and truthful information would have been exchanged prior to the conclusion of the contract.

The typical example is when you buy a house with latent defects known to the seller.

Imaging that the seller of the property is aware that the foundation of his house is not built according to legal standards and is dangerous but fails to disclose this information known to him to a potential buyer.

The buyer agrees to buy the property for a price it considers fair but is not aware of the major defect affecting the foundation.

If the buyer would have known about the major defect, he would not have bought the property.

This is a case where due to the seller’s misrepresentation, the consent of the buyer was vitiated.

Can a voidable contract be legally binding

A voidable contract can become legally binding if the aggrieved party does not reject or repudiate the contract within a reasonable time following the discovery of the voidability grounds.

So if you discover facts and information, following the execution of a contract, you consider justifies the unenforceability of the contract, you should raise it as soon as possible.

A voidable contract can be formally accepted or ratified by the unbound party.

The acceptance can be tacit.

If the aggrieved party to a contract discovers the acts of misrepresentation or fraudulent behaviours of the other but continues to abide by the terms of the contract, then the contract may ultimately become legally binding when a sufficient amount of time passes.

It’s all a question of circumstances and the specific fact pattern of each case but you should be mindful that a voidable contract can become legally binding.

On the flip side, a void contract can never become legally binding.

How to protect yourself when signing a contract

To avoid signing a voidable contract, you can take some measures to protect yourself:

  1. Make sure you read and understand the terms and conditions of a contract
  2. Consult an attorney who can explain to you the content of what you are signing
  3. Ask the other party questions and get clarification to ambiguous points
  4. Every word in the contract counts, make sure you pay attention to details
  5. Validate that the other entity or person is legally able to sign a contract with you
  6. Make sure what you are signing is legal
  7. If you are pressured and you have the ability to avoid signing the contract on the spot, take the time you need before signing
  8. When it sounds too good to be true, maybe it is

If you take basic precautions, in most cases, you can avoid placing yourself in a situation where you have signed a contract and may need to incur legal costs to prove that the contract is voidable.

Takeaways

A voidable contract is initially a valid contract but voidable based on the discovery of grounds justifying its voidability.

A contract can be either void to start with or voidable after it is signed.

A void contract is a contract that violates the law and was never enforceable to start with.

A voidable contract is a contract that was considered as valid by the parties but eventually one party to the contract considers the contract to be unenforceable against it due to valid legal grounds.

A contract can be voided in the following circumstances:

  1. Coercion
  2. Pressure
  3. Undue influence 
  4. Misrepresentation 
  5. Lack of legal capacity  

And more.

An important characteristic of a voidable contract is that the party considering that it is not bound to the contract, the unbound party, can either reject the contract or accept it.

If the unbound party accepts the contract, then the contract becomes legally binding on the parties.

If the unbound party rejects the contract, then the person will claim that the contract cannot be enforceable against him or her.

Often, this leads to a lawsuit or legal dispute.

Ultimately, a court of law will need to determine if the contract was voidable or not.

If you find yourself in a situation where you signed a contract but do not believe the contract was legally formed or should legally bind you, consult a litigation lawyer.

We hope this article helped define voidable contracts.

Do you have experience dealing with a voidable contract?

We would love to hear from you!

Drop us a comment!