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A contract can be classified as valid, void, or voidable.
1. Valid
A valid contract is one that meets the basic elements of contract law.
For example, you sign to buy a blue house, and the house is blue; thus the contract is valid.
2. Voidable
A voidable contract provides the option to rescind by either party. At the creation of the contract, it is valid but it could be voided in the future. Most sales contracts are voidable contracts because they contain contingency clauses.
For example, remember that blue house you wanted to buy? Well, you signed a contract for a blue house, but now you show up and the house is green! This is VOIDABLE, not VOID! That is because the violation of the contract should not stop you from being able to buy the house. You signed for a blue house, but what if you do not mind the color green? That is why you have the option to continue with the contract, making it VOIDABLE, not VOID.
A contingency is the dependence upon a stated event that must occur before a contract is binding, such as providing a blue house when you sign for a blue house. If a contingency provision cannot be met, the contract can be legally voided, such as in the example given.
Contracts entered into under duress, misrepresentation, or fraud are voidable, not void. For example, if a gun is put to your head with a person saying, "Sign the contract or else I will shoot," that is being put under duress in its most intense form. But even that does not make the contract void. What if you actually like the property? Well, you can still buy it, even though you were put under duress, as the contract is VOIDABLE, not VOID.
3. Void
A void contract has no legal force. It is missing an essential element, and thus it is not a contract.
For example, a contract to kill would be void, because it has an illegal purpose. You do not have the option to kill somebody! A more common example is if one of the parties involved is legally deemed mentally incompetent. If that is true, the contract is void as it violates one of the four essential elements of a valid contract: mutual consent, lawful object, capable parties, and consideration.