Voidable Contract: Definition, How It Works, and Examples
A voidable contract is a valid, legally enforceable agreement that one party can later cancel or reject because of a legal defect. The right to cancel is called disaffirmance. Until the affected party disaffirms the agreement, the contract remains enforceable.
Key takeaways
- A voidable contract is valid until the party with the legal right to reject it chooses to do so.
- Common grounds for voidability include misrepresentation, fraud, duress, undue influence, unconscionable terms, or lack of legal capacity (e.g., minority).
- A void contract, by contrast, is unenforceable from the start (for example, if it requires illegal activity).
How voidable contracts work
- Initially enforceable: The contract is treated as legally binding when created.
- One-sided remedy: Typically only the harmed or disempowered party can void the contract.
- Options after discovering a defect:
- Disaffirmance — the affected party rejects the contract and is released from its obligations.
- Ratification — the affected party affirms or accepts the contract (explicitly or implicitly), making it fully binding despite the original defect.
- Rescission and renegotiation — parties may agree to cancel the contract or revise its terms to remove the problematic element.
Disaffirmance and ratification
- Disaffirmance must be communicated (e.g., in writing or by clear conduct like refusing to perform).
- Someone who lacked capacity when signing (for example, a minor) can disaffirm while still lacking capacity or after regaining legal capacity, depending on jurisdiction.
- Ratification occurs when the affected party knowingly accepts the contract’s benefits or otherwise acts in a way that confirms the agreement, removing the right to disaffirm.
Voidable vs. void contracts
- Voidable contract: Valid and enforceable until the party with the power to avoid it disaffirms it. Example grounds include fraud, misrepresentation, duress, undue influence, unconscionability, or incapacity.
- Void contract: Legally invalid from the outset and cannot be enforced by either party. Common reasons include illegality of purpose or impossibility due to one party’s instant incapacity (e.g., death) that makes the agreed performance illegal or impossible.
Common reasons a contract is voidable
- Misrepresentation or material omission of facts
- Fraud or deceit
- Mistake (mutual or certain unilateral mistakes)
- Duress or undue influence
- One party’s lack of legal capacity at the time of contracting (e.g., a minor or someone incapacitated)
- Unconscionable or grossly unfair terms
- Breach that permits the injured party to avoid further performance
Examples
- In-app purchases and minors: Freemium apps that permit in-app purchases may create disputes when minors accept terms or make purchases without informed consent; such agreements can be challenged as voidable.
- Long-term consumer contracts: Allegations that a company used deceptive practices to bind consumers to long-term, escalating-price contracts have been advanced as grounds to make those contracts voidable.
The bottom line
A voidable contract provides a legal escape for a party who entered into an agreement under certain defects or improper circumstances. The affected party can disaffirm the contract, negotiate revisions, or ratify it once the defect is removed or waived. This differs from a void contract, which is unenforceable from its creation.