What Makes a Contract Invalid?
Knowing what makes a contract invalid will help you avoid common mistakes when drafting an agreement. 3 min read
Updated October 15,2020:
Knowing what makes a contract invalid will help you avoid common mistakes when drafting an agreement. When presented with one in the future, you will be able to tell right away whether the contract is legal or not, thus sparing yourself from unintentional involvement in any illegal activity.
Essential Components to Include In a Contract
To make a contract valid and enforceable under the law, adhere to the following guidelines:
- Include in the contract the two main elements―an offer and an acceptance.
- Make sure the contract's subject matter is legal.
- Make sure that both parties enter the contract willingly, are over the age of consent, and have the mental capacity to satisfy the terms of the agreement.
- Include a clearly defined consideration, which could take the form of money, interest, a right, or benefit.
- Make sure to execute the contract in the appropriate form, either written or verbal. Note that contracts dealing with significant considerations, real estate, or debts, as well as contracts that cannot be fulfilled for a while, must be in written form.
Difference Between “Void” and “Voidable” Contracts
A void contract is not valid and, thus, is not enforceable under the law. None of the parties are bound by its terms. The following circumstances can void a contract:
- The contract's terms are illegal or violate public policy.
- At the time of signing the contract, a party was not of sound mind.
- A party was not of the age of consent.
- It is impossible to satisfy the terms of the contract.
- The contract violates a party's rights.
A voidable contract, on the other hand, is a valid agreement that sometimes could be enforced if both parties agree to proceed with it. The following scenarios can deem a contract voidable:
- A party was forced or threatened to enter the agreement.
- Undue influence was exercised over a party.
- A party had no mental competence to sign the agreement.
- The contract was breached.
- Both parties made mistakes.
- The contract was fraudulent.
- The information and facts were misrepresented.
Advice for Executing a Contract Correctly
- Read through the entire document.
- Make sure the terms of the contract are clear and specific.
- Make sure to understand exactly what you are agreeing to and clarify anything that seems vague.
- Put it in written form to protect yourself in case of any disputes in the future.
- Be aware of the acceptance details.
- Confirm the identity of the other party.
Mistakes That Make a Contract Void
- Unilateral mistake.
- Mutual mistake.
- Mistake as to identity.
- Lack of capacity.
- Allocation of risk.
- Defective contracts.
- Failure to understand.
- Mistake relating to documents.
- Noncontractual subject matter.
- Failure to reach an agreement.
- Failure to negotiate.
Mistakes Made When Negotiating Contracts
- Bypassing the planning stage.
- Being a passive participant.
- Relying on a generic template.
- Combining multiple contracts.
- Misunderstanding of services and products.
- Relying on unclear breach of contract terms.
- Omitting conflict resolution procedures.
- Excluding detailed payment terms.
- Accepting the partner's explanation.
- Starting before the execution.
A Checklist for Creating a Successful Contract
- Offer and acceptance.
- Intention to create legal relation.
- Lawful consideration.
- Capacity of parties.
- Free consent.
- Lawful object.
- Writing and registration.
- Possibility of performance.
- Not expressly declared void.
Exceptions That Can Void a Contract
- A future modification of the contract.
- The existence of a similar agreement, not contradicting or changing the main contract.
- A condition that had to happen before contract's fulfillment was due.
- The contract formation defects.
- The parties' intentions about unclear terms in the contract.
- The consideration's problems.
- A previous valid agreement that is incorrectly reflected in the contract.
The following reasons could make a valid contract impossible to enforce:
- Lack of capacity.
- Duress, or coercion, into a contract.
- Undue influence.
- Misrepresentation during the negotiation process.
- Nondisclosure of important facts.
- Unconscionability (when something about the agreement is shockingly unfair).
- Public policy violation (for example, when an employee is forced to sign a contract that prevents them from joining a union or going on a medical leave, or when a landlord makes a resident sign a contract to forbid companion animals for medical purposes).
- A mistake made by either or both parties.
- Impossibility of fulfillment of the contract's terms.
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