We enter into contracts on a daily basis in our lives sometimes without a second thought to what happens when things go wrong. It is vital that parties to a contract should be aware of whether and when that contract may be void or voidable.
When does a contract form?
For a contract to be legally binding and enforceable, the following elements must be present:
This is the promise by one party to another to fulfil an obligation. This in itself must be specific, complete, and capable of acceptance.
This is the unequivocal acceptance of an offer. Special care should be taken that there is no counter-offer as it will mean there will be a new offer in place.
This is some form of payment of any value.
d) Intent to created legal relations
This is self-explanation and can be presumed in certain circumstances.
The agreement must be complete and not vague or ambiguous.
Despite the above criteria being satisfied, negotiations between the parties could have been flawed. As a result, the contract could become void or voidable.
Contracts that are void are unenforceable by law. This is the same for both parties and means that neither could take the matter to court to try and obtain a remedy. The position is as if the contract never existed.
A contract for illegal services, such as arranging prostitution or to commit a crime are void in law. In addition, a contract that requires a party to perform something that is impossible is void.
Contracts can also be deemed void where one party has taken advantage of another when entering into the contract. For example, where one party does not have capacity to understand what they are contracting into. This can be because they lack the mental capacity or are temporarily inebriated when entering into the contract.
Furthermore, a contract would be void on the basis that it is contrary to public policy or if it restricts certain activities, such as the right to choose who to marry.
Unlike the above, voidable contracts are enforceable at the time of formation. However, they can be voided at a later point in time by one or both parties if certain conditions are satisfied, or defects take place. Therefore, these contracts can be enforced in the court up until such time as they are made void.
In the event where one party has made a false statement that had induced the other party to enter into the contract, this will be voidable on the basis of misrepresentation.
A contract is voidable if it was entered into when one party was a minor. This is because the law treats minors as not having the capacity to enter into contracts. However, voidable contracts can be ratified at a later stage. In this scenario, the parties could agree to proceed on the terms of the contract once the minor is of age and gives their approval.
In a sporting context, often in National Football League (“NFL”) players contracts contain voidable terms. Players have ‘guarantees’ within their contracts that mean that they will receive certain payments for fulfilling their contracts, even in the event they are injured. However, payment of these ‘guarantees’ are voidable based on the player’s conduct. In the event they receive certain suspensions and/or bans, this will void that part of the contract and no payment is due.
Contracts During COVID-19
The unprecedented COVID-19 pandemic has resulted in many contractual issues, such as cancelled events and holidays. Please click here to see our latest advice, specific to the Coronavirus crisis.