Explain the Difference between Void and Voidable Contract

Contracts are essential for any business, but sometimes the terms can get confusing. Two terms that are often used interchangeably are “void” and “voidable” contracts, but they’re not the same thing. Understanding the difference between these two types of contracts is critical for businesses to ensure that they’re working within legal boundaries.

What is a Void Contract?

A void contract is a legally invalid agreement, meaning that it cannot be enforced by either party. It’s as if the contract never existed at all. There are several reasons why a contract might be void, such as:

– It’s illegal: If a contract violates a law or statute, it’s considered void. For example, a contract to sell illegal drugs is void.

– It’s against public policy: If a contract goes against public policy, it’s considered void. For example, a contract that waives someone’s rights to sue is against public policy and therefore unenforceable.

– It lacks contractual capacity: If one or both parties lacked the capacity to enter into a contract, it’s void. For example, a contract with a minor is voidable because minors lack contractual capacity.

Void contracts have no legal effect, so no one can be held responsible for not upholding the terms. If a contract is void, it’s as if it never existed, so parties can walk away from it without legal repercussions.

What is a Voidable Contract?

Unlike a void contract, a voidable contract is a valid agreement, but one party has the option to avoid the contract. This means that the contract isn’t necessarily invalid, but it can be canceled under certain circumstances. Usually, the party that has the option to cancel the contract is the one who was taken advantage of in some way.

For example, if a person signs a contract while under duress, the contract is voidable. Duress refers to a situation where someone is forced or threatened to do something against their will. If someone signs a contract because they fear for their safety, the contract is voidable because the person was coerced into signing.

Similarly, contracts signed by minors are usually voidable because minors lack contractual capacity. A minor may choose to avoid a contract if they feel it’s not in their best interest.

In voidable contracts, the contract is valid unless one party exercises their right to cancel. If the contract is canceled, it’s as if it never existed, and both parties are released from their obligations.

The Bottom Line

Understanding the difference between void and voidable contracts is crucial for businesses to avoid legal troubles. While void contracts are invalid and unenforceable, voidable contracts are valid but can be canceled under certain conditions. By understanding these terms, businesses can ensure that all their contracts are legally binding and enforceable.