Void vs voidable vs unenforceable contracts: how to tell them apart

The four labels in one minute

PSI's national outline lists "Void, voidable and unenforceable contracts" by name in the Contracts section, which is 19 percent of the national portion. Right next to it sit "Elements necessary for a contract to be valid" and "Effect of the Statute of Frauds". Be ready for questions that hand you a short story and ask which label fits.

There are four labels, and each one answers a different question. Valid means the contract has every required element and a court will enforce it. Void means there was never a contract the law recognizes, so neither side can enforce it and nobody needs to cancel it. Voidable means the contract is valid and binding until one protected party chooses to cancel it. Unenforceable means the agreement may well exist, but a court will not make the unwilling party perform it.

What makes a contract valid in the first place

Every label is measured against a valid contract, so start there. Real estate courses teach the same core elements: competent parties, mutual agreement (an offer and an acceptance), consideration, and a legal purpose. For a contract to sell real estate, the general rule adds a writing signed by the party you want to hold to it. Take away one of the first four and you usually get a void or voidable contract. Take away the writing and you usually get an unenforceable one.

The contracts study guide covers the elements in more depth, including offer, counteroffer and consideration. Here we stay on the labels.

Void contracts: illegal purpose and missing elements

A void contract has no legal effect from the moment it is made. Nobody has to cancel it, and nobody can ratify it into a valid deal later. The exam's favorite void example is a contract for an illegal purpose, such as an agreement to sell property for use in a crime. The other common one is a contract missing an essential element, such as no consideration at all, so there was never a real agreement to enforce.

Many courses also teach that a contract signed by someone a court has already declared legally incompetent is void, because that person had no capacity to agree. Compare that with a minor or a person who was merely impaired on the day of signing; those usually land in the voidable column. On the exam, the words "adjudged" or "declared incompetent by a court" point to void.

Voidable contracts: minors, fraud, duress and undue influence

A voidable contract is valid and binding until the protected party decides to cancel it. That party can also choose to keep it, which is called ratifying it. The other side has no such choice. That one-sided right is what the exam is testing.

• Minors. In general, a contract signed by a minor is voidable by the minor, not by the adult on the other side. The minor can disaffirm it while still a minor or within a reasonable time after reaching adulthood. If the minor ratifies it after reaching adulthood, by words or conduct such as continuing to make payments, it becomes fully binding. Courses also teach one exception: a minor can be held to pay the reasonable value of necessaries such as food or shelter. Exam questions about a minor buying or selling real estate almost always want the general voidable answer.
• Fraud or misrepresentation. When a lie about a material fact induces someone to sign, the party who was deceived can cancel. The party who lied cannot use their own fraud to escape the deal.
• Duress. A party pressured by threats into signing can cancel. On the exam, duress is treated as making the contract voidable by the victim.
• Undue influence. When someone in a position of trust takes unfair advantage of the other party, the influenced party can cancel.
• Mutual mistake. When both sides are wrong about a basic fact that matters to the deal, such as both believing a house is standing when it burned down the night before, the contract is generally treated as voidable by the party the mistake hurts. A one-sided mistake usually is not enough to get out.

New Jersey sets the age of majority at 18. Under N.J.S.A. 9:17B-3, a person 18 or older is treated as an adult with the same legal capacity as a person 21 or older, and their acts cannot be disaffirmed because of minority. The statute lists some exceptions, such as certain child welfare services and court authority over people under 21, but none of them changes the basic exam answer: in New Jersey, an 18 year old who signs a real estate contract is an adult for contract purposes.

Six exam-style scenarios, worked through

These are illustrative people, written the way PSI style questions are written. Cover the right column and try each one first.

Notice the pattern. Fraud, duress, undue influence, mutual mistake and minority point to a person, so they are voidable. Illegality points to the deal itself, so it is void. Missing paperwork and lost time point to the court's willingness to help, so they are unenforceable.

Unenforceable contracts: the statute of frauds and the statute of limitations

Unenforceable is the label people most often confuse with void. The difference is that an unenforceable contract can still exist. If both sides go ahead and perform it voluntarily, the result stands. What is missing is a court's help in forcing an unwilling party to perform.

The statute of frauds is the classic example. The general rule tested on the national exam is that a contract to sell real estate must be in a writing signed by the party to be charged. New Jersey's version, N.J.S.A. 25:1-13, lets the person enforcing an oral real estate agreement prove the property, the interest, the agreement and the parties by clear and convincing evidence instead of a signed writing. So in New Jersey an oral deal is hard to enforce, not automatically unenforceable. Our post on whether a real estate contract must be in writing in NJ walks through that exception in detail.

The statute of limitations is the second example. A contract can be perfectly valid, but if the injured party waits too long to sue, the claim is barred. In New Jersey, N.J.S.A. 2A:14-1 sets six years from when the claim accrued for contract claims not under seal, among other actions. It carves out sales of goods, which follow their own rule, so do not apply the six years to everything.

New Jersey twists worth knowing

The national portion tests the general rules above. These New Jersey rules sit on top of them, and each one is a place where an exam question or a real client can trip you up.

Attorney review deserves a careful word. A contract in attorney review is not void and it does not fit neatly into the voidable column either. The Commission's rule in N.J.A.C. 11:5-6.2(g) requires these licensee-prepared contracts to say they become legally binding at the end of the three business day period unless an attorney for the buyer or seller disapproves. The three days run from delivery of the signed contract to the buyer and seller, not counting Saturdays, Sundays or legal holidays. It is a cancellation window built into the contract by rule. The attorney review study guide covers timing and notice.

The commission rule works the same way as the statute of frauds on the exam. N.J.S.A. 45:15-3 does not say a deal with an unlicensed person is void. It says nobody can bring or keep a lawsuit for a broker's commission without alleging and proving they were a licensed broker when the claim arose, and a salesperson can sue only their own employing broker. In label terms, the unlicensed person's commission claim is unenforceable in court. See licensing and the Commission for the license rules behind it.

How to answer these questions on test day

This is our suggested routine, not a PSI rule. It works because every scenario hides one fact that decides the label.

1. Find the problem fact: an age, a lie, a threat, an illegal use, a missing writing or a long delay.
2. Ask whether the problem is with a person, the deal itself, or the court's willingness to help.
3. Person problem (minor, fraud, duress, undue influence, mutual mistake): voidable, and only by the protected person.
4. Deal problem (illegal purpose, missing essential element): void.
5. Court problem (no signed writing under the general rule, statute of limitations run): unenforceable.
6. Then check whether the question asks for the general rule or a New Jersey rule. If it names New Jersey, think about 18 as the age of majority and the clear and convincing evidence exception.

When you can do that in under a minute, try a timed set on the practice exam to see whether contracts questions are still costing you points.