Breaking Down Contracts Clauses: Void v. Voidable Contracts

The Power of Four Little Letters

Often when discussing contracts, individuals will use the terms “void” and “voidable” interchangeably in relation to the ability to cancel or terminate a contract. However, when signing or drafting a contract there are drastic differences in the legal ramifications of a contract that is void versus one that is voidable. 

Basically, a void contract fails to meet the basic requirements for a contract to be valid under the law, and therefore it is not able to be legally recognized under the law or in court. Whereas, a “voidable” contract is a valid contract that can be canceled under specific circumstances, if the negatively affected party chooses to do so. 

Below are more details to help identify each kind of contract. If you think you may have a void or voidable contract, it’s important to discuss the situation with an attorney to understand your possible defenses, remedies, and ways to correct such errors, if possible.

Void Contracts:

A void contract lacks legality and cannot be upheld under the law. This means the law views the situation as if the contract never existed in the first place. There are several scenarios that can result in a void contract, below are some of the most common:

• Illegal Activity: A contract cannot require either party to engage in an illegal activity. For example, a contract for the sale of illegal guns is a void contract.

• Lack of Capacity: One party of the contract cannot be someone who lacks capacity to enter into a binding legal agreement. For example, minors (in most states, this is individuals under age 18) do not have the capacity to contract (which is why they need parental consent), so their contracts are void. Another example is if someone has been declared by a court of law to not have the capacity to contract, such as in cases where an individual has been adjudicated mentally incompetent. 

• Duress or Fraud: If a contract is entered into under duress (coercion) or fraud, it may be void.

• Written into law: Some contracts are written into law as void. For example, some state laws ban non-compete agreements in employment as a matter of public policy, and thus, any non-compete with employees in that state is void. (Note, there was a federal rule on this, but this is currently paused in litigation.)

If a contract is void, it is unenforceable, meaning neither party can use it as evidence in a court of law in their favor. No damages or remedies are available to either party.

Voidable Contracts:

A voidable contract is valid and enforceable until one of the parties actively takes steps to void it.  Below are some of the most common scenarios that lead to a voidable contract:

• Misrepresentation: If a party makes false statements that induce the other party to enter the contract, the misled party can choose to void the contract once they become aware of the misrepresentation. This applies to both intentional and unintentional misrepresentation.

• Unconscionability: If a contract is grossly unfair or one-sided (this is at the discretion of a court), the disadvantaged party can choose to void it.

• Voidable under the law: Some state and federal laws give affected parties the ability to terminate a contract deemed voidable. For example, the Pennsylvania Home Improvement Consumer Protection Act gives homeowners and consumers the ability to terminate a home improvement contract that does not meet the requirements under Pennsylvania law. 

• Frustration of Purpose: If an aspect of the contract becomes impossible for a party to perform, a contract may be voidable. For example, the death of one of the parties before the contract is fulfilled (only in some scenarios; in others, the individual’s estate may also take on the obligations). Or, the contract is to paint a building and before the work is completed, the building burns down rendering the task impossible. 

If a clause or error is discovered as voidable, both parties also have the option to come together and amend the contract to correct the issue rather than leave the contract as voidable. Alternatively, the negatively affected party can choose to cancel the contract. That party can then use the voided contract as evidence if they choose to sue for damages or remedies.

All of the above are examples, and sometimes there are specific issues that arise and nuances to each situation so due to the different risks that come with a void or voidable contract, and the potential options, defenses, and remedies involved, we recommend consulting a legal professional to review any contracts before signing and before determining whether your contract is valid or voidable. 

DISCLAIMER: This blog post is meant for informational purposes only and does not constitute specific legal advice or create an attorney-client relationship. Readers should discuss their specific situation and considerations with an attorney.