A voidable contract is an agreement between two or more parties that is legally binding, with provisions which can be legally canceled on certain grounds. Though initially binding, a voidable contract is essentially an agreement which stays with the parties until an event occurs which changes the relationship between them. A voidable contract may need to be declared void by a court or other legal authority, or it may be terminated voluntarily by the parties. This distinction is important because void and voidable contracts are governed by two different sets of legal rules.

A contract can be declared void if one or more of the parties involved lacks the legal capacity to enter into an agreement, or if the agreement itself violates public policy or is otherwise illegal or unenforceable, such as if it contains conditions that are deemed rude, unjust, or unenforceable. Other reasons for a contract to be declared void include fraud, duress, mistake, illegality, and lack of consideration.

The parties may also choose to void their contract voluntarily, if they so choose. This may occur if the terms of the agreement are not being fulfilled, or if the parties simply decide that the agreement no longer serves their interests. In such a case, the agreement is often deemed voidable and the parties are then free to mutually invalidate the contract.

Voidable contracts can also be annulled—which is the legal process for voiding a contract—if one of the parties has been harmed or financially disadvantaged by the contract and can prove that there was a defect in its making (e.g., duress, mistake, etc.). Depending on the jurisdiction, the court may either revoke the agreement completely, or only revoke certain terms within it.

When voidable contracts are declared invalid, they are treated as if they had never been entered into at all, and all sums of money involved in the agreement are generally refunded to the parties involved. Any goods, services, or other items exchanged in connection with the agreement are returned to their original parties, or money is paid in lieu thereof.

In conclusion, when a contract is deemed voidable, it means that under certain conditions, the contract is no longer legally binding and can be nullified or modified. It is important for parties to a contract to identify whether the agreement is legally valid, or if it is voidable, at the outset in order to understand their legal rights should any dispute arise.