A voidable contract is an agreement entered into by two or more parties that can be declared invalid by one of the parties for a legal reason. Usually, only one of the parties has the right to cancel the contract. Until that party voids the contract, it remains valid and binding on all of the parties. Instead of voiding the contract, the party who is allowed to void it also has the option to affirm the contract. When affirmation occurs, the contract becomes valid, and the entitled party no longer has a right to void it.
For example, suppose that John sells Suzy a car for $2,000 US Dollars (USD) a month before Suzy turns 18 and becomes an adult. This contract would be an example of a voidable contract because a legal defect exists – minors generally cannot enter into legal contracts. Even though a defect is present, the contract would remain legally binding on both parties until Suzy rejects it. If she rejects it, John does not have a remedy. If Suzy turns 18 and then agrees to pay the $2,000 for the car, then the contract becomes ratified and Suzy would lose her right to cancel the contract.
Contracts can become voidable if fraud, misrepresentation, or mistake occurs. Voidable contracts also include those entered into by a person who lacks capacity or by a person who entered into the contract under duress or undue influence. In addition, a voidable contract may occur in a situation where one of the contracting parties is a fiduciary and abuses his or her power in that role. In these situations, the contract is not annulled until the party who has legal grounds to cancel the contract formally invalidates it. Alternatively, the party can elect to ratify the contract, in which case it becomes an enforceable contract.
Generally, an agreement entered into by a minor is a voidable contract. In most jurisdictions, if a minor or an incompetent person gets married, the marriage is voidable. A minor may elect to obtain an annulment of the marriage or to affirm the marriage once the minor is of legal age. In the case of an incompetent person, the person may affirm the marriage if he or she becomes competent.
A voidable contract is different from a void contract. Void contracts are contracts that cannot be legally enforced on the parties. If two parties enter into an agreement to perform an illegal action, for instance, the contract would be considered a void contract. A contract can also become a void contract if performance of the duties in the contract becomes impossible.
