How to Know When a Contract Has Become Legally Void
Fraud, misrepresentation, coercion and other issues can often invalidate contracts
From renting a car to buying a house, and even going to school, contracts are the underpinning of nearly every major financial or legal transaction in world. The average American likely signs hundreds, if not thousands of contracts in their lifetime, as well as enters into countless “unspoken” contracts; i.e. those that are implied by the intentional actions of two or more individuals over a period of time.
Despite the importance of contracts, they don’t mean anything unless they’re both valid and legally binding. When a contract no longer has legal power, it becomes invalid, or void. This can happen for a variety of reasons, including fraud, lack of consideration, or mutual mistakes committed by both parties. Most contracts become void for ordinary reasons, such as contract expiration or a simple mistake. However, in some cases, the difference between a void and a voided contract can make a huge difference, especially in cases involving large amounts of money.
Therefore, to protect yourself financially, it’s essential to understand when a contract is void and when it’s still valid. In some situations, finding the answer can actually be a complex process, and many long and drawn-out legal cases have hinged solely on determining whether or not a contract was valid and legally binding in a particular set of circumstances. However, most of the time it’s relatively easy to determine if a contract is void or not:
To determine what makes a contract void, let’s take a look at what makes one valid
In order to effectively understand when a contract is void, it’s important to first understand when it isn’t. So, what makes a contract valid? A few things, actually. First, there needs to be offer and acceptance. In other words, one party makes an offer (often in the form of a written contract) to the other, which will need to accept the offer for their contract to become valid and legally binding. Often, acceptance does not occur until after a long negotiation process between the two parties.
In addition, a contract needs consideration in order to become valid. Consideration simply means that both parties are giving something up in exchange for something else. Without consideration, a contract is simply a series of rules imposed on an individual, instead of a potentially fair and beneficial exchange between two or more parties. Consideration often comes in the form of money, but it can also include land or other property, or an exchange involving a “right, interest, or benefit.” A contract also needs to be consistent with a few other legal stipulations: First, it needs to be made “freely between both parties,” that is, without undue influence, threat, or coercion. In addition, all parties to a contract must be over the age of consent and must have the mental capacity to carry out any tasks or activities referred to in the contract agreement.
Why some contracts are void
When a contract is void, it has never been enforceable. Often, this is because a specific element, such as consideration, is clearly missing. Technically, these contracts don’t become void – they were void from the moment of their creation. Some of the most common reasons that contracts become void often include:
- The legality of the exchange proposed in the contract (unlawful exchanges are void)
- One or more individuals party to the contract were “not of sound mind” when they agreed to the contract
- One or more individuals party to the contract is a minor (with some possible exceptions)
- The terms of the contract are unreasonable as to be practically impossible to be completed or achieved, i.e. a contract assigning incredibly unrealistic tasks to a party
- The agreement restricts the legal rights of one or more parties; while a contract may restrict some privileges of one or more parties (with reasonably fair consideration), human and constitutional rights are off limits
Other contracts may become voidable due to various circumstances
A voidable contract, unlike a void contract, may initially be valid; but due to certain actions or circumstances, it became void. However, unlike a void contract, a voidable contract is “valid and may be enforceable in certain situations if both parties agree to move forward.” Here are some of the most common reasons why initially valid contracts become voidable:
- Threats, coercion, or undue influence were used in an attempt to convince one or more parties to sign the agreement
- Breach of the contract stipulations by one or both parties
- Other, so called “mutual mistakes” on behalf of both parties
- A contract seems legitimate but is later found to be misleading or fraudulent, either about material facts or the intentions of one or more parties
Understanding when contracts are void – or simply voidable
No matter what industry you work in, knowing the difference between valid, void, and voidable contracts is essential. Understanding contracts won’t only help you avoid trouble at work; they can also help you better understand the financial agreements you enter on a regular basis, especially when you buy things like insurance, car loans, mutual funds, or your mortgage. Knowing the law isn’t just for lawyers and you don’t always need to be an expert to reap many of the benefits. However, to evaluate or design effective, complex contracts for your South Florida business, contact the experienced corporate transactional attorneys at PBL Law today for a free consultation.