A voidable contract is a formal agreement between two parties that may be rendered unenforceable for various legal reasons, such as:
- 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 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 defects are discovered. If the party with the power to reject the contract chooses not to, the contract remains valid and enforceable.
Most often, only one of the parties is adversely affected by agreeing to a voidable contract due to misrepresentation or fraud 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 the elements of the contract before acceptance. With new knowledge, this party has the opportunity to reject the contract afterward. Alternatively, a contract is voidable when one or both parties were not legally capable of entering into the agreement, such as when one party is a minor.
In contrast, a void contract is inherently unenforceable. For example, 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 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 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, that party can choose to ratify the contract when they are deemed legally capable.
Examples of Potentially Voidable Contracts
Freemium Apps and Minors
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, which may lead to solicitation of in-app purchases. This type of activity led to a lawsuit against Apple in 2012, suggesting the transactions were part of a voidable contract.
Solar Power Contract Lawsuit
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 electricity generated by solar systems at increasing rates. The lawsuit sought to render all of Vivint’s prior contracts with homeowners as voidable if affected customers wanted to cancel them. However, this was not included in a settlement agreement between the New Mexico attorney general and Vivint in May 2021.
Related Terms: void contract, breach of contract, fraudulent misrepresentation.
References
- United States District Court, N.D. California, San Jose Division. “In Re Apple in-App Purchase Litigation, Case No. 5-11-CV-1758 EJD”.
- New Mexico Attorney General’s Office. “AG Balderas Sues Massive Solar Company for Defrauding New Mexicans & Jeopardizing Their Home Ownership”.
