In Arizona, the difference between void and voidable contracts boils down to enforceability. A void contract is invalid from day one, while a voidable contract remains valid unless one party chooses to cancel it.
What Is a Void Contract in Arizona?
A void contract is unenforceable from the outset. Arizona law treats it as though it never existed. This means neither party can enforce its terms in court. For example, a contract may be void for the following reasons:
- Illegal subject matter: Agreements to engage in conduct that violates Arizona law or federal law are void. For instance, a startup cannot contract with an investor to funnel money into unlicensed cryptocurrency exchanges that violate securities regulations.
- Contrary to public policy: A contract that unreasonably restrains trade or competition may be deemed void. For instance, if two competing software firms agree not to bid against each other for state government contracts, that agreement could be void under Arizona antitrust law.
- Missing essential elements: All contracts require an offer, acceptance, consideration, capacity, and legality. If one of these is missing, the contract is void. A vague “agreement to agree” on a future joint venture, without defined terms, would not be enforceable.
Because void contracts are invalid from the start, businesses cannot rely on them for legal remedies.
What Is a Voidable Contract in Arizona?
Unlike void contracts, voidable contracts begin as valid and enforceable but contain circumstances that allow one party to attempt to avoid performing under the contract. The contract is binding unless and until the affected party prevails in its attempt to rescind. These defenses to contract enforcement may arise when there is:
- Misrepresentation or fraud: If a tech vendor misrepresents the capabilities of its software during contract negotiations, the purchaser may attempt to void the contract once the truth is revealed.
- Duress or undue influence: If a small business owner is pressured improperly by a business partner to sell his or her shares in a company or else face the release of personal information, the contract may be voidable.
- Mistake: A mutual misunderstanding about a material fact can make a contract voidable. For example, if both parties believed a software license included perpetual use but the written terms limited it to three years, the misunderstanding could support rescission.
- Lack of capacity: While less common in the business context, if a contract is signed by someone lacking legal authority—such as an employee without authorization to bind the company—it may be voidable by the business.
The party with the potential defense to enforcement may seek to challenge the enforceability of the agreement in order to avoid having to perform and generally has the burden to convince a court not to enforce an otherwise enforceable agreement.
Why the Difference Matters for Arizona Businesses
For Arizona businesses, knowing whether a contract is void or voidable is critical.
- A void contract offers no legal protection. If a company relies on such an agreement, it risks wasted time, money, and resources with no recourse.
- A voidable contract may provide flexibility. The disadvantaged party can enforce the agreement if it serves its interests or attempt to rescind it if the defect undermines the deal.
Understanding these categories helps companies spot risks before they become disputes. A Phoenix contract dispute lawyer can help evaluate the risks before problems escalate.
