Voidable Contract

A voidable contract is a legally valid agreement that one or more parties has the option to cancel, or void, due to a defect in how it was formed. Unlike a void contract, which is unenforceable from the beginning, a voidable contract remains fully binding unless and until the party with the right to void it takes action to cancel it. The grounds for voiding a contract include fraud, misrepresentation, duress, undue influence, mistake, and lack of capacity. If the party with the right to void chooses not to exercise that right, the contract remains in full force.

Think of a voidable contract as a door with a lock on one side: the party with the key can walk out, but until they do, both sides remain bound.

Grounds for Voiding a Contract

Courts recognize specific legal grounds that give a party the right to rescind a voidable contract. Each ground addresses a different flaw in the consent or capacity that formed the agreement.

• Fraud: One party intentionally misrepresented a material fact to induce the other to enter the contract. The defrauded party can void the contract regardless of whether the fraud was about a price, a product's quality, or an asset's existence.
• Misrepresentation: An innocent or negligent false statement of fact that induced entry into the contract. The misled party can void the contract even without proving intent to deceive.
• Duress: A party was coerced by unlawful threats or force into signing. Economic duress, where one party wrongfully withholds something needed to compel agreement to unfavorable terms, can also support rescission.
• Undue influence: One party used a position of trust or authority to overpower the free will of the other, such as a financial advisor who pressures an elderly client into a disadvantageous transaction.
• Mutual or unilateral mistake: A fundamental factual error about the subject matter of the contract. Only a mutual mistake where both parties shared the same incorrect belief typically supports rescission under most U.S. states' contract law.
• Lack of capacity: A minor, or a person who was intoxicated or mentally incapacitated at the time of signing, typically can void a contract because the law requires full legal capacity to form a binding agreement.

Ratification: Choosing to Keep the Contract

The party with the right to void a voidable contract can also choose to ratify it, which permanently eliminates the right to rescind. Ratification occurs when the party, with knowledge of the defect, acts in a manner inconsistent with voiding the contract. A minor who reaches the age of 18 and continues making payments under a contract entered as a minor is deemed to have ratified it. A party who discovered fraud but continued performing under the contract for several months without asserting rescission may have ratified it by their conduct.

Ratification does not require a written statement. Courts look at the totality of the party's behavior after learning of the defect to determine whether they elected to keep the contract in force.

Void vs. Voidable vs. Unenforceable

These three categories describe different degrees of contract infirmity. A void contract is not a contract at all: it has no legal effect and neither party can enforce it. An example is a contract to commit a crime. A voidable contract is valid but rescindable at one party's election. An unenforceable contract is technically valid but cannot be enforced in court due to a technical defect, such as the statute of frauds requiring a written agreement that was made only orally. An unenforceable contract may still create moral obligations even if courts will not compel performance.

Remedies After Voiding

When a party successfully voids a contract, the typical remedy is rescission and restitution: the court unwinds the transaction by requiring each party to return whatever they received. If you bought goods based on fraudulent misrepresentation and void the sale contract, you return the goods and receive your purchase price back. If restitution in kind is impossible because the goods were consumed or damaged, the court awards monetary restitution equal to the benefit conferred.

Sources

• https://www.law.cornell.edu/wex/voidable_contract
• https://www.uniformlaws.org/acts/ucc
• https://restatement.law.upenn.edu/contract/