Contracts are agreements between two parties to exchange something of value. While that may sound straightforward, certain situations can make a contract void or unenforceable.
The law does not recognize contracts for illegal acts like selling narcotics or for immoral acts that are against the law, such as prostitution. If a contract becomes illegal after it is made, it becomes unenforceable and any previous payments made must be returned.
Signing a contract under duress or intimidation, also known as overreaching, also voids the agreement. Duress is a threat or intimidation that causes a person to do something against his or her will. The threat can be physical or it can be economic, where one party has an unfair advantage over the other and uses it to the other's detriment. If a person signs a contract under duress, he should contact an attorney as quickly as possible to determine his legal rights.
Undue influence occurs when a person uses a trusting relationship to persuade the other person into an unfair contract. This ploy most often occurs against people at a disadvantage such as age, illness, or emotional stability.
Fraud also makes a contract void. Fraud occurs when one party lies or misrepresents an important part of a contract to the other party. An example would be a car owner's rolling back the odometer of a used car and claiming the car has been driven 30,000 miles rather than the actual 60,000 miles.
However, a fine line exists between fraud and a seller's opinion of the subject of the contract, known as sales puffing, which does not void a contract. Determining whether fraud or sales puffing occurred in contract defense can be difficult and usually has to be interpreted in court.
Mistakes do happen in negotiating and signing contracts. Some mistakes can void a contract, while others may not. A buyer's mistaken impression is not the seller's fault, unless the seller knows of the false impression and does not correct the information. The best way to avoid this situation as a buyer is never to assume anything, but to ask questions.
If both sides of the contract have incorrect information, known as a mutual mistake, the court will often set aside a contract.The mistake puts both buyer and seller at a disadvantage and voiding the contract is in everyone's best interest.
Sometimes situations change after a contract is signed, making the deal either impossible to perform or unnecessary. Safeguards exist in these cases for the courts to set aside these contracts.