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What Makes a Contract Null and Void? These Mistakes Do.

August 26, 2020

what makes a contract null and void
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Details matter. Especially in legal agreements. 

Every term, condition, and individual facet of a legally binding contract can make a world of difference. Wording can make or break obligations, definitions can simplify the language or cause confusion, and missing or included elements can be the difference between a valid or void contract.  

A null and void contract is an illegitimate agreement, making it unenforceable by the law. Null and void contracts are never actually executed because they are missing one or more of the required elements of a legal agreement. 

Writing a contract is a lot of work, and it’s a huge bummer when you can’t follow through with the agreement because the contract is null and void. It’s crucial that your contract management strategy includes methods and procedures to refrain from creating contracts that can’t be enforced because it’s missing an important element or it wasn’t properly reviewed. 

To take extra precautions, you need to understand the necessary elements of a contract, what makes a contract void or voidable, how to terminate an agreement with the other party, and how to avoid useless contracts by implementing a solid review process. 

Elements of a contract

Defining what makes a contract null and void first requires an explanation of the elements that are necessary for a contract to be valid. While the detailed contents of a contract will differ depending on the subject matter, a contract must include the following six elements to be legally binding and enforceable. 

1. Capacity

Contractual capacity refers to an individual’s ability to enter into an enforceable contract. People who are underage, mentally disabled, or intoxicated lack legal capacity and can’t be held liable for their end of the agreement. They can choose to move forward with the agreement if they wish, but they can also exit the contract at any time without breaching. 

2. Offer

An offer is the initial draft of a contract that includes the terms of the contract to which the offeror is willing to be bound. Most offers – and contracts for that matter – include a promise to act or not act in a certain way or an exchange of promises. If the offer is accepted and signed, it becomes legally binding at that moment. 

3. Acceptance

Acceptance, in reference to the offer made, is an agreement to abide by the terms and conditions in the contract provided by the offeror. An offers acceptance must be made in the manner specified by the contract, or, if not specified, in a way that is seen as reasonable for that situation. If an offer is accepted, it is approved of to its entirety. If not, the offeree can send the offeror a counter offer, which is simply a modified version of the original contract. The process then starts over with that new offer and the roles are reversed. 

4. Legality

Legality simply refers to whether or not the terms, conditions, and overall agreement abide by the law and public policy. If the subject matter of a contract isn’t legal, it isn’t enforceable. For the agreement to be valid, the deal must be legal. 

5. Consideration 

Consideration, in regard to contracts, is the exchange of one thing for another. Contract law states that both parties in the agreement need to provide something of value for the agreement to be valid. Consideration can include money, an item, or completing a certain action for someone. 

6. Mutuality

Mutuality is a contract element that states both parties need to be bound to the agreement for it to be valid. If one party isn’t legally bound, then neither are. Mutuality is an issue in situations where one party has the ability to exit or cancel the contract and the other doesn’t. Those types of agreements lack mutuality and aren’t valid. 

Void contract vs. voidable contract

Now that we know what makes a contract valid, let’s take a look at what makes one void and voidable. While the roots of those words are the same, they have different meanings when applied to contracts. 

Void contract

A void contract is one that is illegitimate and unenforceable no matter what. Contracts are void because of the way they were drafted. Typically, these agreements don’t abide by the six elements of a contract listed above. A contract can also be considered void if all obligations have been fulfilled and there is no longer anything to enforce. 

What makes a contract void? 

  • The subject matter of the contract contains illegal activity
  • The terms are impossible or too vague to understand and follow through on
  • There was a lack of consideration
  • There was a false representation of facts

For example, if Tom and Mike enter a contract stating that Mike will pay Tom to rob a bank and share the profits, this contract is void and unenforceable from the start because the subject matter is illegal. 

Voidable contract

Although the name may lead you to believe differently, a voidable contract is actually a valid agreement that can be enforced if both parties decide to move forward with it. However, as the agreement moves forward, the contract can become void later on at the option of one of the parties. 

What makes a contract voidable? 

  • A party forced the other into signing the contract
  • A party was under undue influence
  • A party breaches the terms of a contract

The affected party can either decide to exit the contract without committing a breach of contract or continue with it if they wish. For example, if a minor signed a contract with a business, they can choose to exit the contract without penalty if they wish. Or if they want to move forward with the agreement, they can do that as well. 

void vs voidable contract

The key difference between a void and voidable contract is the time at which the agreement is considered void. A void contract is unenforceable from the beginning when it was created, and a voidable contract starts as valid but might become enforceable later on. 

How to terminate an agreement

If you have entered a voidable contract and have assumed the position of the party looking to end the agreement, you have to properly terminate the contract. If you don’t, you might be held liable for breaching the contract. Or even if you are simply in a contract that you want to end early, you can also implement one of these termination methods to avoid issues later on.  

  • Termination by mutual agreement: the most basic termination document that must be signed by both parties, stating they both mutually agree to end the contract. If both have signed this document, neither party can sue the other if they change their mind and wish not to cancel later on. 
  • Termination for convenience: a notice sent from one party to another to express interest in terminating the contract. These notices must abide by agreement terms and offer a reasonable amount of notice before the termination takes effect. 
  • Termination for cause: the termination method used for the most serious offenses and issues. To cancel a contract like this, you need to send a notice to the other party. In these situations, it’s a good idea to seek legal advice and have a contract lawyer draft up the notice. 

How to properly review a contract

It’s a long process to send or receive an offer, get to a final draft of a contract, and abide by the terms and conditions required of you. And to do all of that for the contract to be void or terminated is even worse. Here are some tips on reviewing a contract to implement so you can avoid unenforceable contracts, legal trouble, or both. 

Read the entire contract

This is arguably the most important part of entering any legal agreement. Before you send or when you receive an offer, make sure you take the time to read it carefully. Don’t skip ahead to the terms and conditions, and never assume you know everything included in the contract. These documents can get lengthy and confusing, but it’s better to take more time to go over everything with a fine-tooth comb than sign something that includes details you aren’t aware of. 

Be as clear as possible

Whether you are writing the original contract offer or redrafting another version to send a counteroffer, it’s necessary to be as clear as possible. Contracts are not a time to play games or try to trick people. Every term, condition, description, and detail of the contract must be as clear and definitive as possible. A lot of contracts will include a section that defines any terms that could have multiple meanings or are too jargony. 

Clarify if you don't understand 

When reading through the contract, you might come across some terms, clauses, or entire sections that aren’t very clear to you. If this is the case, always clarify things that don’t make sense. Again, it’s best to take more time to reach a final contract draft that everyone is comfortable with. Make sure the other party is doing this as well. 

Put it in writing

Oral contracts are valid agreements, but they can be a bit difficult to enforce. Details can be forgotten, and when it comes down to handling conflict, it’s one party’s word against the other’s. Written versions of contracts include all details of the deal and evidence that the agreement actually exists. Putting a contract in writing isn’t always necessary, but as the agreement becomes more detailed, it becomes more relevant. 

Get to know the other party

No matter the deal, it’s always a good idea to get to know the other party. And the more serious and long-term the agreement, the more important this becomes. Make sure the other party is trustworthy and able to hold up their end of the bargain. While part of entering a contract is to offer someone else something of value, it can’t just be a one-way exchange. 

Besides those tips, there are a few extra questions you should be asking yourself before sending an offer or signing on the dotted line:

  • Are the terms and conditions of this contract legal and enforceable by the law? 
  • Do I agree to all of the essential terms?
  • Does this contract restrict the rights of me or the other party?
  • Are these terms possible to perform? 
  • Do both parties completely understand the details of the agreement?

Always double check

The agreement you’ve made with someone might be simple, but things can get a bit complicated once you formalize it with a contract. It’s never a bad idea to run through your contract again to ensure you won’t encounter the possibility of it becoming void. Read it, understand it, and then read it again (just for good measure). 

Your business is probably involved in a lot of different types of contracts. Let contract management software simplify that for you.

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