Voidable Contract Definition How It Works With Examples

Voidable Contract Definition: How It Works, With Examples

What Is a Voidable Contract?

A voidable contract is a formal agreement between two parties that may be rendered unenforceable for legal reasons, including:

– Failure to disclose a material fact

– Mistake, misrepresentation, or fraud

– Undue influence or duress

– One party’s legal incapacity to enter a contract (e.g., a minor)

– Unconscionable terms

– Breach of contract

The legal right to void such a contract is called disaffirmance.

Key Takeaways

– A voidable contract can be canceled or altered for legal reasons.

– Not all contracts are voidable; legal precedent is necessary.

– Finding a defect in a contract is a common way to void it.

– The simplest way to void a contract is for both parties to agree.

How Voidable Contracts Work

A voidable contract is initially considered legal and enforceable but can be rejected by one party if defects are discovered. If the party with the power to reject the contract chooses not to despite the defect, the contract remains valid.

Usually, only one party is affected by agreeing to a voidable contract without recognizing misrepresentations or fraud by the other party.

Voidable vs. Void Contracts

A voidable contract occurs when one party wouldn’t have agreed if they had known all the elements of the contract beforehand. With new knowledge, the party has the opportunity to reject the contract. In contrast, a contract is void if it is inherently unenforceable due to illegal terms or if a party becomes incapable of meeting the terms.

A voidable contract can be corrected through ratification, where all parties agree to new terms removing the initial point of contention. For example, if one party was initially incapable of entering into a legally enforceable contract but later becomes capable, they can choose to ratify the contract.

Examples of Potentially Voidable Contracts

Certain smartphone apps, known as freemium apps, start as free downloads but later allow in-app purchases with real money. Some freemium apps aimed at children may result in minors accepting terms and conditions that allow for later in-app purchases. Litigation against Apple in 2012 claimed these transactions were part of voidable contracts.

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 with increasing electricity purchase rates. The lawsuit aimed to make all prior contracts voidable for affected customers, but a settlement agreement in May 2021 did not include this provision.