What Makes a Contract Voidable?

For a contract to be valid and enforceable there are a number of legal requirements that must be satisfied. However, if you have entered into a contract but are uncomfortable as to whether you were actually informed of the terms and conditions, or maybe you were coerced into entering into the contract, then the contract might be voidable.

What does it mean when a contract is ‘voidable’?

A voidable contract is one where an ‘innocent’ party to the contract may, at their option, end the contract. However, a voidable contract may still be legally valid with the consent of the innocent party.

Factors that can render a contract voidable:

Mistake

It may be that one or both parties made a mistake when entering the contract. There are generally three types of mistakes which may render a contract voidable.

1. Common Mistake

A common mistake in contracts occur when both parties to a contract are mistaken about the same element of the contract. For example, two parties entered a contract for the sale of artwork believed to be genuine by both parties, however the artwork was determined to be a counterfeit.

2. Mutual Mistake

A mutual mistake occurs when both parties to a contract are mistaken about different elements of the contract. This is rare in practice, one famous example of this is where two parties were negotiating the sale of a house. However, there were two streets of the same name. In this case, each party was referring to a different house although the street names were the same. This occurred in Alpine Harwood v Hardy’s. As both parties were referring to different streets, a mutual mistake has occurred.

3. Unilateral Mistake

A unilateral mistake occurs when one party to an agreement is mistaken about an aspect of a contract, but the other party is not. For example, a party lists a property for sale with an asking price of $90,000 but in fact intended to sell the property for $900,000. In this case, the seller made an error whereas the buyer did not.

It is important to note that as soon as a contracting party is aware of a mistake, they should attempt to rectify it as soon as possible.

Misrepresentation

The most common type of misrepresentation is when a person gives false information to another, which induces the other party to enter a contract.

Fraud

Any conduct including falsifying information, withholding information or having no intention to deliver on the terms of the contract will render a contract voidable.

Duress

Duress occurs when one party believes they were forced into entering a contract or agreement with another party; for example, where one party threatens the other party if they do not enter a contract. If duress can be established, the contract will be voidable.

Undue Influence

Undue influence occurs when there is an imbalance of power between parties to a contract, which results in the weaker party entering a contract with the dominant party.

Express Undue Influence

Express undue influence simply occurs when it can be proven that a dominant party exerted undue influence on a party to enter into a contractual agreement. An example of this is when one party may not speak and/or write in English and the other party is aware of this but does not provide enough support for the other party to get additional assistance prior to signing.

Implied Undue Influence

Implied undue influence occurs when there is a relationship of trust already established between the weaker and dominant party. For example, relationships where undue influence is presumed includes:
– Solicitor and client
– Parent and child
– Doctor and patient

Key Takeaways

It is important to recognise when a contract may be voidable, to ensure your agreement accurately represents your wishes, while protecting you legally.

We can help, we have reviewed every type of contract from various industries and sectors, which has provided us with a deep understanding of where and when problems can occur. If you have any questions regarding the voidability of a contract, or any questions about contracts in general, please contact Lord Commercial Lawyers on (03) 9600 0162 or email us at info@lordlaw.com.au.

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