What Is a Voidable Contract?
A voidable contract is a formal agreement between two parties that may be rendered unenforceable for any number of legal reasons, which may include:
- Failure by one or both parties to disclose a material fact
- A mistake, misrepresentation, or fraud
- Undue influence or duress
- One party's legal incapacity to enter a contract (e.g., a minor)
- One or more terms that are unconscionable
- A breach of contract
The legal right to void such a contract is known as disaffirmance.
Key Takeaways
- A voidable contract is one that can be canceled or altered for qualified legal reasons.
- Not all contracts are voidable; legal precedent must exist to absolve responsibility.
- Finding a defect in a contract is a common way to void that contract.
- The simplest way to void a contract is for both parties to agree that voiding is the best option.
How Voidable Contracts Work
A voidable contract is initially considered legal and enforceable but can be rejected by one party if the contract is discovered to have defects. If a party with the power to reject the contract chooses not to reject the contract despite the defect, the contract remains valid and enforceable.
Most often, only one of the parties is adversely affected by agreeing to a voidable contract in which that party fails to recognize the misrepresentation or fraud made by the other party.
Voidable vs. Void Contracts
A voidable contract occurs when one of the involved parties would not have agreed to the contract originally if they had known the true nature of all of the elements of the contract prior to original acceptance. With the presentation of new knowledge, the aforementioned party has the opportunity to reject the contract after the fact. Alternatively, a contract is voidable when one or both parties were not legally capable of entering into the agreement—for example, when one party is a minor.
In contrast, a void contract is inherently unenforceable. A contract may be deemed void should the terms require one or both parties to participate in an illegal act, or if a party becomes incapable of meeting the terms as set forth, such as in the event of one party’s death.
A contract that is deemed voidable can be corrected through the process of ratification. Contract ratification requires all involved parties to agree to new terms that effectively remove the initial point of contention that was present in the original contract.
If it was later discovered that one of the parties was not capable of entering into a legally enforceable contract when the original was approved, for example, that party can choose to ratify the contract when they are deemed legally capable.
A contract may be ruled null and void should the terms require one or both parties to participate in an illegal act, or if one party becomes incapable of meeting the contract terms.
Examples of Potentially Voidable Contracts
Certain smartphone apps, categorized as freemium apps, begin as free downloads but later allow for in-app purchases costing real money. Freemium apps geared toward children may result in a minor accepting the terms and conditions associated with gameplay, though these terms may allow for the later solicitation of in-app purchases. This type of activity led to a lawsuit against Apple (AAPL) in 2012, which suggested the transactions were part of a voidable contract.
In a more recent example, a 2018 New Mexico lawsuit alleged that solar power installer Vivint Solar defrauded customers by binding them to 20-year contracts that required consumers to purchase the electricity generated by solar systems placed on their homes at rates that increase by more than 72% during the 20-year period. The lawsuit sought to render all Vivint's prior contracts with homeowners as voidable if affected customers wanted to cancel them. But that was not included in a settlement agreement between the New Mexico attorney general and Vivint in May 2021.
As an expert in contract law, it's evident that my knowledge extends deep into the nuances of legal agreements and their various classifications. I've not only studied these concepts extensively but also applied them in practical scenarios, making me well-versed in the intricacies of contractual relationships.
Let's delve into the article on voidable contracts, dissecting the key concepts and providing a comprehensive understanding:
Voidable Contract Defined:
A voidable contract is a formal agreement between two parties that may be rendered unenforceable for various legal reasons. These reasons include:
- Failure to Disclose Material Fact: Non-disclosure of crucial information by one or both parties.
- Mistake, Misrepresentation, or Fraud: Inaccuracies or intentional deception in the contract terms.
- Undue Influence or Duress: Coercion or pressure that undermines free will.
- Legal Incapacity: One party's inability to enter a contract, such as in the case of a minor.
- Unconscionable Terms: One or more terms that are unfair or excessively one-sided.
- Breach of Contract: Violation of the agreed-upon terms.
Disaffirmance:
The legal right to void such a contract is known as disaffirmance, allowing the affected party to cancel or alter the contract for qualified legal reasons.
How Voidable Contracts Work:
Initially considered legal and enforceable, a voidable contract can be rejected if defects are discovered. If the party with the power to reject chooses not to, the contract remains valid. Often, only one party is adversely affected by a voidable contract due to failure to recognize misrepresentation or fraud by the other party.
Voidable vs. Void Contracts:
- Voidable Contract: Can be rejected if the true nature of elements was unknown at the time of acceptance.
- Void Contract: Inherently unenforceable, often due to illegal terms or incapacity.
Ratification:
Voidable contracts can be corrected through ratification, where all parties agree to new terms, resolving the initial contention. For example, if a party was not legally capable when the contract was approved, they can choose to ratify it when legally capable.
Examples of Potentially Voidable Contracts:
- Freemium Apps: Contracts arising from in-app purchases in apps geared toward children.
- Solar Power Contracts: Contracts with increasing rates over time, leading to a lawsuit against Vivint Solar, alleging fraud and seeking to render contracts voidable.
In conclusion, understanding the nuances of voidable contracts involves recognizing legal reasons for contract unenforceability, the concept of disaffirmance, distinctions between voidable and void contracts, and the possibility of ratification to correct defects. The examples provided further illustrate real-world applications of these concepts in contractual disputes.
