Voidable Contract

A contract is considered voidable when it’s entered into without the voluntary consent of all parties involved. Essentially, a voidable contract can be enforced by some parties but not by others. If the party who has the right to cancel the contract doesn't do so within a reasonable time, the contract may become legally binding.

Reasons to void a contract

There are several reasons a formal agreement between two parties can become voidable, including:

  • One or both parties failed to disclose important information
  • A mistake, misrepresentation, or fraud occurred
  • Excessive pressure or coercion was applied
  • One party was legally unable to enter into the contract (e.g., a minor)
  • The contract contains offensive terms
  • A breach of contract happened

The right to cancel such a contract is known as disaffirmance.

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How voidable contracts work

A voidable contract starts out as valid and enforceable. However, if issues are found later, one party can cancel it. If the party with the right to void the contract decides not to, the contract stays valid.

Examples of potentially voidable contracts

Imagine a situation where a person is coerced into signing a contract under duress. For instance, consider a landlord who pressures a tenant to sign a lease agreement by threatening to evict them immediately if they refuse. The tenant, feeling they have no other choice, signs the lease. Later, the tenant may challenge the validity of the contract because they were coerced into signing it. This lease agreement could be considered voidable due to the excessive pressure applied by the landlord.

Real example

A notable real-world example of a potentially voidable contract occurred in the case of Jones v. Star Credit Corp. (1969). In this case, a low-income family purchased a freezer for $900 from a door-to-door salesman, but due to high finance charges, they ended up owing more than $1,200. The actual market value of the freezer was only about $300. The court found that the contract was unconscionable due to the excessive charges and financial pressure placed on the family, making it voidable. The court's decision allowed the family to void the contract, highlighting the legal principle that contracts entered into under unfair or oppressive conditions can be challenged.

Voidable vs. void contracts

A contract is voidable if one party wouldn't have agreed to it initially if they knew all the facts. If new information comes out later, the affected party can reject the contract. Contracts involving minors or other legally incapable parties are also voidable.

Key points

  • Contracts can be voidable if there are legal reasons for ending or changing them.
  • Not all contracts can be cancelled; there must be a legal basis to release parties from their obligations.
  • Finding a flaw in a contract is a common way to void it.
  • Annulling a contract is easiest if all parties agree it's the best option.

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