Voidability

Voidability refers to the legal capacity of a contract, agreement, or transaction to be declared null and void by a court of law, at the option of one or more parties involved. It signifies that the agreement is not inherently invalid from its inception (void ab initio), but contains a defect, such as misrepresentation, duress, undue influence, mistake, or breach of fiduciary duty, that gives a party the power to choose whether to enforce or rescind it. This choice is typically exercised through legal action, such as a lawsuit seeking rescission or specific performance. If the party with the right to void the contract chooses not to, the contract remains valid and enforceable. However, if that party exercises their right, a court will declare the contract voidable at the time of the transaction.

Voidability meaning with examples

• A homeowner, under duress, signed a contract to sell their property at a significantly reduced price. Due to the coercion, the contract possessed voidability. They could seek rescission in court, and if the duress is proven, the court would declare the contract voidable. This would allow the homeowner to regain their property and annul the sale, offering them protection against exploitation.
• The sales contract contained a misrepresentation regarding the goods' quality. Because of this falsehood, the contract's voidability allowed the buyer to either accept the misrepresented goods or reject the contract. Should the buyer elect to avoid the deal, the court's recognition of the deceit will render the contract voidable. Therefore, the buyer can claim damages or demand specific performance, depending on circumstances.
• A company executive, acting on their own and against company policy, entered a deal that constituted a breach of their fiduciary duty. The potential for conflict rendered the contract subject to voidability. The company can now elect to void the contract based on this breach, shielding itself from financial consequences. This right allows the company to remedy the agent's inappropriate actions.
• After the contract was signed, it was discovered that both parties misunderstood a key clause in the agreement. This mutual mistake introduces voidability into the agreement. One or both parties might seek to rescind the contract. The Court would likely determine the contract voidable. Thus, both parties have the choice of rescinding the contract, as there was a fundamental misunderstanding.