When is a Contract not a Contract?

Two businessmen having a difference of opinion“Sorry, but you signed a contract.”

Hopefully you’ve never heard that sentence directed at you, because if you have, you were probably on the wrong side of a bad agreement that you wanted to get out of. But when is a contract really a contract?

First of all, it doesn’t need to be a formal document, signed and witnessed (although if it is, it has less chance of being overturned). It doesn’t even need to be written down. A contract just needs an offer by one party, acceptance by the other and consideration. Consideration basically means you agree to provide something in return for whatever they are offering – commonly money in exchange for services or products.

So if you have those three things, the courts will likely rule that you have a contract. But what other factors could make the contract invalid?

Mistake: most mistakes won’t make a contract invalid.

Misrepresentation: otherwise known as false statements. Misrepresentation occurs when one party misrepresents a fact relating to the contract. It doesn’t necessarily have to be included in the contract, but it does need to be a factor in the contract being agreed to. If it is a fact vital to the agreement (a condition) that has been misrepresented, then it is more likely the contract will be deemed invalid than if it is only a ‘warranty’ or less important factor in the agreement. The type of misrepresentation will also impact a court ruling. A fraudulent misrepresentation (the party making the statement intends to deceive the other party) is viewed more seriously than a negligent misrepresentation or an innocent misrepresentation (the party is unaware they are making a false statement).

Duress and Undue Influence: duress occurs when one party threatens another into agreeing to a contract (the person making the threats doesn’t have to be one of the parties to the contract); while undue influence occurs when one party has such an influence over the other that the weaker party didn’t really have any option but to agree to the contract. In both cases, the weaker party will normally have the option not to be bound by the contract.

Unconscionable contract: unlike duress and undue influence, the party taking advantage in this situation isn’t doing so by threats or influence, they are taking advantage of the other party’s lack of understanding of the terms of the agreement.

These explanations only provide a very superficial overview of some situations that could impact the validity of a contract. If you have any concerns regarding a contract agreement, I strongly recommend you seek expert legal advice.

By Jennifer Lowe

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