Seven essential elements must be present before a contract is binding: the offer, acceptance, mutual assent (also known as “meeting of the minds”), consideration, capacity, and legality. Contracts are typically in writing and signed to prove all of those elements are present.
Void vs voidable contracts
It’s almost as though the law purposely uses confusing terms. “Void” contracts and “voidable” contracts are good examples. Both are problematic, but there are very big differences between the two that you need to understand.
In the simplest terms, a void contract was never legal in the first place, so it isn’t valid even if the two parties have reached mutual assent on all the other essential elements of a contract. By contrast, a voidable contract contains a legal flaw to the disadvantage of one party, but the contract remains in effect until that party gets a court to declare it void.
Legal flaws of a void contract
In legal terms, something that is void is legally irrelevant and unenforceable. A void contract is legally invalid from the moment the two parties sign it because it’s illegal.
An example of a void contract could be as simple as renting your garage. Let’s say you work the night shift and recognize an opportunity to make some easy cash. You rent your garage to a heavy metal band for practice until 4 a.m., which not coincidentally is when you shift ends. However, your town has a noise ordinance that forbids the band from playing after 10 p.m. The contract will be meaningless if the neighbors call the police complaining about noise while you’re at work.
A contract that’s legal when it was written and signed can later become void if the law or other circumstances change. In our band practice example, perhaps the town had no noise ordinance when you rented the garage, but the neighbor whose complaints you’ve ignored lobbies their elected representative, who successfully passes a noise ordinance. Your contract with the band then becomes void.
What is a voidable contract?
A voidable contract contains a legal flaw that makes it enforceable for one party but not the other. Lack of capacity by one party will result in a void contract, but only if that party takes the contract to court.
Examples of parties lacking capacity to sign contracts include minors, adults with cognitive problems or who otherwise couldn’t have been expected to understand the contract they signed, and anyone who signs a contract under duress. These contracts remain enforceable until the party lacking capacity has a court declare the contract void.
Let’s revisit the heavy metal band that was renting your garage. It turns out they’re middle school kids, and they find a place to practice where nobody complains. They work hard, and when they’re in high school, an unscrupulous recording company tricks them into signing a contract that pays them very little.
To everyone’s surprise, the band is an instant hit, and the record company makes millions. The record company has to pay the kids in the band the little money they agreed to, but because they were minors when they signed the contract, the kids in the band can have the contract declared void and try to recover the money from the sale of their music.
A contract is voidable if one party failed to disclose information that, if the other party had known, would have caused them not to sign the contract in the first place. A contract can become voidable if there is negligence, misrepresentation, fraud, duress, lack of capacity, or breach of contract.
For example, you find a car that seems to be in nearly new condition for a very good price. Unbeknownst to you, the car was submerged in a flood but has since been dried, repainted, and detailed. Later, you find out the car was in a flood and that the seller was legally obligated to tell you. If it turns out the car is fine after all, you got a good deal. However, if the car soon begins to break down, the sales contract is void, and you can sue the former owner.
Real estate law offers many examples of voidable contracts based on the condition of the property when sale or lease is agreed to. Everything was perfect when you made the final walk-through before signing the lease or sales agreement, but when you move in, you find the seller stripped the light fixtures and interior doors from the house. The sales contract is now voidable because this was not the condition of the property when you agreed to buy it.
While it may seem like void contracts and voidable contracts are the same, there are differences you need to understand. You should never try to be your own lawyer, but it’s always a good idea to learn enough law to understand the advice your lawyer gives you.