What Is a Voidable Contract?

A voidable contract is a type of contract in which one party has the option to either enforce the contract or void it without liability, at their discretion. This means that while the contract is initially valid and binding, certain circumstances or conditions exist that allow one party to choose whether to enforce or void it.

Option to void: A voidable contract is considered valid and enforceable when it is initially formed. Both parties enter into the contract willingly and with the intention to be bound by its terms. However, what sets a voidable contract apart from a void contract is that there exists a factor giving one party the option to void it. This means that this party can choose to cancel the contract if he wishes, rendering it unenforceable.

Grounds: There are several reasons why a contract may be considered voidable. Common grounds for voiding a contract include:

1. Duress: This occurs when one party is compelled to enter into the contract through force, threats, or undue pressure. For instance, if a person threatens physical harm to another person to make him sign a contract, the party being forced into the contract may have grounds to void it due to coercion.
2. Undue influence: Undue influence arises when one party has a special relationship or significant power over the other party, and they exploit this position to manipulate the weaker party into the contract. For example, if an elderly individual is pressured by his caregiver to sign a contract benefiting the caregiver, this could be a case of undue influence.
3. Misrepresentation or fraud: Misrepresentation or fraud involves one party intentionally or negligently providing false information or concealing important facts that induce the other party to enter into the contract. If the deceived party discovers the misrepresentation, he may choose to void the contract.
4. Unilateral mistake: A unilateral mistake occurs when one party to a contract makes an error regarding an aspect of the contract. As the mistake is created by one party, he is liable for his own mistake, so the other party has the option to void or enforce the contract.

Voidability: Voidable contracts are typically voidable only for a certain period or under certain circumstance. Once the grounds for voiding contract cease to exist or if the party with the option to void takes action that affirm the contract, the option to void may no longer be available. If the party with the option to void continues to act as if the contract is valid, he may be considered to have affirmed or ratified the contract. Once a contract is affirmed, it becomes fully enforceable, and the option to void is lost.

Effect of voiding: If the voidable party chooses to void the contract, it becomes void and unenforceable from that point onward. Both parties are released from their obligations under the contract, and they are returned to their pre-contractual positions. Once a voidable contract is voided, any payments or benefits received under the contract may need to be returned or restored to their original owners to avoid unjust enrichment.

Voidable contracts serve as a legal safeguard to protect parties from entering into agreements under duress, undue influence, or when they lack the capacity to make informed decisions. These contracts provide a mechanism for challenging agreements that are not entered into freely and voluntarily. However, it is important to understand that voidability is not automatic; the party with the option to void must take affirmative steps to exercise that option.