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Business Law
There is a fundamental difference between a void contract and a voidable contract. A void contract is a contract that has been declared void by a court. The law must declare a contract void for it to be so (Ebersole, 2009). A void contract no longer exists, so there is no change in the legal position of the parties.
A voidable contract is a contract that can be rejected by one of the parties on legal grounds. The contract remains valid and binding until the party entitled to void it does so. In a voidable contract, there is a defect that exists. This defect may be remedied or the contract may be allowed to continue as valid. One party, however, may be able to use that defect to have the contract voided. Until that happens, however, the contract is merely voidable and both parties are still bound by its terms (No author, 2010).
For example, if a 16-year-old gets his or her driver's license then promptly goes to the dealership and buys a car. This would represent a voidable contract by way of a defect -- the 16-year-old is a minor and therefore cannot legally enter into a contract to buy a car. A minor does not have legal capacity to enter into a contract. This contract will remain valid, however, unless one of the parties wishes to have it voided. The teenager will continue to drive the car and the dealer will keep the money. It may come to pass that the 16-year-old's parents take the dealer to court to have the contract voided.
The court would most likely agree, and the contract would be voided. The teenager would return the car and the dealer would return the money, as the benefit would need to be returned if the contract is voided. In this situation, the contract is void. It no longer exists. There are no further rights or obligations on either party and both parties are restored as best as possible to their original condition. Until the court rules that the contract is void, however, it will remain a voidable contract.
Works Cited:
Ebersole, J. (2009). Void vs. voidable contracts. ChestofBooks.com. Retrieved April 30, 2010 from http://chestofbooks.com/finance/banking/Elementary-Banking-AIB/Void-Versus-Voidable-Contracts.html
No author. (2010). Contract law. Otto-Graph.com. Retrieved April 30, 2010 from http://www.otto-graph.com/samples/3/contractlaw.html
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