Voidable Contract

What is a 'Voidable Contract'

A voidable contract is a formal agreement between two parties that may be rendered unenforceable for a number of legal reasons. Reasons that can make a contract voidable include failure by one or both parties to disclose a material fact; a mistake, misrepresentation or fraud; undue influence or duress; one party's legal incapacity to enter a contract; one or more terms that are unconscionable; or a breach of contract.

BREAKING DOWN 'Voidable Contract'

A voidable contract is originally considered to be legal and enforceable but can be rejected by one party if the contract is discovered to have defects. If the party with the power to reject the contract chooses not to reject the contract despite the defect, the contract remains valid enforceable. Most often only one of the parties is adversely affected by agreeing to a voidable contract in which the party fails to recognize the misrepresentation or fraud made by the other party.

Ratification of Voidable Contracts

A contract that is deemed voidable can be corrected through the process of ratification. Contract ratification requires all involved parties to agree to new terms that effectively remove the initial point of contention present in the original contract.

For example, if one of the parties was not capable of entering into a legally enforceable contract when the original was approved, that party can choose to ratify the contract when legally capable. This applies when one of the parties that originally agreed to the contract was under the influence of a mind-altering substance resulting in the original signature not being considered valid. If that person wishes to remain bound by the contract, it may be ratified to allow the person to sign while in a mindset deemed legally capable to do so.

Difference between Voidable and Void Contracts

A voidable contract occurs when one of the involved parties would not have agreed to the contract originally if he had known the true nature of the all of the elements of the contract prior to original acceptance. With the presentation of new knowledge, the aforementioned party has the opportunity to reject the contract after the fact. Alternatively, a contract is voidable when one or both parties were not legally capable of entering into the agreement, such as when one party is a minor.

In contrast, a void contract is inherently unenforceable. A contract may be deemed void should the terms require one or both parties to participate in an illegal act or if a party becomes incapable of meeting the terms as set forth, such as in the event of one party’s death.

Determining a Potentially Voidable Contract

Certain smartphone apps, categorized as freemium apps, begin as free downloads that allow for in-app purchases costing real currency. Those freemium apps that are geared toward children may result in a minor accepting the terms and conditions associated with game play, although soliciting for in-app purchases may occur later. This led to a lawsuit against Apple in 2012 suggesting the transactions were part of a voidable contract.