A voidable contract can be repudiated by either party, while a void contract is not valid from the start. Marriage and insurance contracts are often voidable, but non-cancellable contracts like mortgages must be fulfilled. Ending a voidable contract requires notification and sometimes a court order.
A voidable contract is a valid legal contract that either party may choose to repudiate, voiding the contract and ending the obligation for both parties to perform. It is important to distinguish between nullable and void, as the two terms mean different things. Void legal contracts are those that are not valid to begin with; for example, a contract may include an illegal clause that invalidates it. Voidable contracts are legally binding, but only on one side. The other can choose to terminate the contract.
Several types of contracts are voidable by nature. In many countries, marriage is a common example, and in this case both parties, rather than just one, may choose to end the legal relationship. The agreement holds until a person requests it, in many regions through a no-fault system where partners declare they are no longer compatible and wish to separate.
Insurance contracts are also often voidable. Insurance companies may choose to terminate a contract if they find evidence of fraud, the insured defaults on obligations or becomes a higher risk, such as if a driver is repeatedly injured in an accident and the insurance company decides to stop the cover offer. Similarly, policyholders can choose to stop paying for their insurance, canceling the contract for failing to fulfill their obligations.
When a contract is non-cancellable, it is legally binding until obligations have been fulfilled. An example is a mortgage; the borrower must repay the loan with interest and fees. Failure to comply with the obligations does not terminate the contract. Instead, it triggers a collection action, because the contract is still in effect until the cargo is repaid. Choosing whether to structure a contract in a voidable manner can be an important consideration, and it is important to read the terms carefully to understand what will happen if circumstances change and it is no longer possible to fulfill the terms of the contract.
In a voidable contract, the process of ending the agreement usually involves sending a notification to the other party to make them aware of the situation. Sometimes a court order is needed to finalize the repudiation of the contract, as seen with a marriage. It is important to keep records so that, in the event of a dispute, information about the end of the contract is readily available, including detailed documentation showing that all parties knew the contract was about to expire by a certain date.
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