Voidable Contract

Definition of 'Voidable Contract'

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.

Investopedia explains 'Voidable Contract'

A voidable contract can be legally rejected by one party and is said to have a defect. If the party with the power to reject the contract chooses not to reject the contract despite the defect, the contract becomes valid and enforceable.

It is usually only one of the two parties who would be adversely affected by agreeing to a voidable contract if they had recognized the misrepresentation or fraud made by the other party. For example, the first party would not have agreed to the contract originally and has the opportunity to reject it after the fact. In contrast, a void contract is inherently unenforceable. An example would be a contract that violates the law, such as a murder for hire contract.