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The Differences Between Void and Voidable Contracts You Need to Know
You create and execute contracts daily, most of the time, without realizing you’re doing it. These common, easily completed contracts mostly go through without a problem. For example, when you go to the barber or hair salon, you and the hairdresser enter a contract. You expect to get the haircut you ask them to give you, and they expect to get paid.
Unfortunately, life isn’t always so simple. Many other more complicated agreements should be written down and accepted with a signature before the project begins. This legally-binding contract creates an enforceable agreement. This article will go through the requirements of a contract and the differences between void and voidable contracts.
What Makes a Contract Valid?
Contracts are important agreements that make business possible, especially when problems arise. A valid contract must have the following sections:
- Offer and Acceptance – One side will make an offer, such as providing services or goods for a price. The other side will need to accept the terms. Acceptance can be shown with a signature or making the requested payment.
- Legal Products or Services – The product or service cannot be illegal for the contract to be legal. For example, the courts won’t uphold a delivery contract for illegal goods.
- Legal Age – The law recognizes adulthood at different levels, such as 18, 19, and 21 years of age. Contracts below that age must include a parent or guardian’s legal agreement.
- Mental Capacity of Participant – Participants in a contract must all be of complete mental competence. This means all parties must understand the contract and the effects it will have.
- Consideration, Price, or Value – Something must be exchanged for the good or service for the contract to be valid. Money is the most common consideration, although any other object or benefit can be used as long as it has some value. Note, the deal does not need to be “fair” for either party – that is left up to the individual parties to decide for themselves.
Let’s now look at the differences between void and voidable contracts. The big difference is that void contracts are invalid, whereas voidable contracts become invalid when one party chooses to accept or reject it.
When is a Contract Void?
A void contract is one that cannot be legally enforced. Neither party is bound by a contract declared to be void. Some reasons for a contract to be declared void include:
- The good or service in the agreement is illegal or breaks a policy
- The sections of the contract are impossible to complete
- The sections of the contract are too vague
- There is no consideration, or exchange of something that has value (e.g. money)
- Any fraudulent acts including misrepresentation of facts
Let’s look at an example of a void contract. For example, an employment contract can become void if the employer asks the employee to do something illegal as part of their job. Or that same employment contract can become void if the employee breaks the law while performing their job.
When is a Contract Voidable?
Now let’s switch to voidable contracts. A voidable contract is only binding for one party. The other party of the agreement can choose to either accept or reject the contract. Some situations when a court could rule a contract to be voidable include:
- One party was threatening the other to sign the contract
- One party was under undue influence
- There are problems in the contract that make it impossible for both or one party to carry out their side.
- One party breaches the terms of the contract
The impacted party can choose to release the contract or continue with it.
Let’s look at an example of a voidable contract. If you agree to buy a house, but then realize 6 months after purchase that there is an undisclosed problem the contract is voidable. Since you are the impacted party, you can either stick with the house (if you think you got a good deal) or void the contract.
Consider Before Agreeing to a Contract
The more you know about valid contracts, the more you will be able to forge successful agreements and business relationships. Become as informed as you can about contracts in general as well as the goods and services you will offer or you will acquire.
If you believe a contract you are part of is void or voidable, please contact the law offices of Aldrich Legal Services. Our expert staff can help you navigate business law issues before they become disputes.