A voidable contract is a valid legal contract which one of the parties can choose to repudiate, canceling the contract and ending the obligation to perform for both parties. It is important to distinguish between voidable and void, as the two terms mean different things. Void legal contracts are those which are invalid from the start; for example, a contract may include an illegal clause that invalidates it. Voidable contracts are legally binding, but only for one party. The other can choose to end the contract.
A number of different kinds of contracts are voidable by nature. In many nations, marriage is a common example, and in this case either party, rather than just one, can choose to end the legal relationship. The agreement remains valid until one person petitions to end it, in many regions through a no-fault system where the partners declare that they are no longer compatible and wish to separate.
Insurance contracts are also frequently voidable. Insurance companies can choose to repudiate a contract if they find evidence of fraud, the insured party fails to meet obligations, or he becomes a higher risk, as for example if a driver repeatedly gets into accidents and the insurance company decides to stop offering coverage. Likewise, insured parties can choose to stop paying for their insurance, voiding the contract by failing to fulfill their obligations.
When a contract is not voidable, it is legally binding until obligations are fulfilled. An example is a mortgage; the debtor must repay the loan with interest and fees. Failing to meet the obligations doesn't end the contract. Instead, it triggers a collection action, because the contract is still in force until the load is repaid. Choosing whether to structure a contract in a voidable way can be an important consideration, and it is important to read clauses carefully to understand what will happen if circumstances change and it is no longer possible to fulfill the terms of the contract.
In a voidable contract, the process for ending the agreement usually requires sending a notification to the other party to make her aware of the situation. Sometimes a court order is necessary to finalize the repudiation of the contract, as seen with a marriage. It is important to keep records so that in the event of a dispute, information about the end of the contract will be readily available, including detailed documentation showing that all parties were aware that the contract was ending by a given date.
