Contracts provide ample legal protection for all parties that are engaged in a business-to-business transaction. However, there are instances where a counterparty would legally challenge and question a contract’s validity.
In essence, contracts can be rendered null and void if there is sufficient evidence that will justify a contract invalidation. In this blog, we’d talk about what makes a contract invalid, common mistakes to avoid, and contract management best practices.
What Makes a Contract Invalid?
What is an invalid contract? An invalid contract is a legally unenforceable agreement caused by a contractual violation. For example, if the contract’s terms violate a public policy, such as the sale or distribution of prohibited drugs.
On the other hand, what makes a contract enforceable is when it fulfills certain legal requirements. A contract must have the key elements: offer, acceptance, awareness, consideration, contractual capacity, and legality. If it lacks any of these, it is considered invalid.
Common Mistakes That Invalidate Contracts
There are key reasons that make a contract invalid and inadmissible. Below are just some of the most common mistakes that serve as the perfect formula for how to invalidate contracts.
Lack of Capacity
Capacity in contract law refers to a person’s adequate age and psychological soundness. An agreement involving a minor or a mentally unsound party is a ground that can invalidate a contract. Hence, it’s important that, besides having the required age, all contracting parties are of sound mind when entering an agreement.
Involvement of Fraud
Misrepresentation of facts and concealment of important information about the terms of an agreement is a fairly common contract breach. This constitutes fraud and is virtually what makes a contract null and void.
Agreements Made under Duress
Contracts require that there must be mutual assent between two or more parties to be bound by the legal provisions. If a person is made to sign an agreement under duress, a contract can be voided. Contract signing must be done voluntarily and not with undue influence from a counterparty.
Unilateral and Mutual Mistakes
Unilateral mistakes are those committed by one party who misinterprets the terms described in the contract. Mutual mistakes, meanwhile, are false assumptions that both parties have held with a contract’s terms.
Agreement contents that are vaguely explained can result in confusion, miscommunication, or worse, a contract invalidation. In essence, poor choice of words and ambiguous phrasing when drafting a contract is a mistake that must be avoided.
Legal Consequences of an Invalid Contract
Invalid contracts will be treated as though no legal agreement has transpired from the very beginning. It is not necessary to file any legal case if neither party has performed their supposed contractual obligations. If performance obligations have been partially rendered, any payments made must be returned.
If compensation is not possible, it must be replaced with a performance value. Let’s say a contract states a performing party must build a house. The latter must render its contractual duties that will equate to the compensation owed.
In addition, since the invalid contract is not enforceable, the terms detailed in the agreement have no legal weight. This makes pursuing a legal case inessential. However, a violated party still has the right to file a lawsuit and seek compensatory damages.
Should a violated party pursue legal action, courts get to decide whether damages need to be granted. But even without a legal case, reputational ruin awaits the breaching party. Meanwhile, the non-breaching company suffers from wasted time and resources.
This makes it imperative for both parties to first settle disputes and demand clarifications for any vague contractual terms. This essentially prevents engaging in an invalid contract that will only tremendously inconvenience both contractors.
Best Practices to Avoid Invalidating a Contract
Free yourself from the prospect of becoming at the receiving end of invalid contracts by factoring in the following:
Clear and concise language
Poor choice of words lead to ambiguities and misunderstandings between concerned parties. Avoid this path by ensuring that the terms are clear, concise, and have no room for more than one interpretation.
A genuine consensus between the parties involved is essential in guaranteeing that a contract will be enforceable. That being said, it is indispensable to establish the intent for both parties to be legally bound.
Besides an offer, acceptance, capacity, legality, and mutual assent, consideration is of the essence in keeping a contract valid. It must be made clear that the performing party will get something in return for its performance. Likewise, the non-performing party must in turn benefit from the said agreement by being granted the services they paid for.
Hire a contract law expert
If you are not fully certain whether a contract is valid or may be invalid, hire a contract law expert. They can doubtless give you expert advice on a contract’s validity (or invalidity). A qualified lawyer can also provide legal guidance about the essential steps you can take when dealing with voidable agreements.
Use legally binding templates
Drafting a contract from scratch can be a tediously time-consuming process. Use binding templates to simplify contract formation without sacrificing quality and legal compliance. If you’re looking for a reputable contract template provider, Fill offers free, customizable templates to make contract creation a breeze.
How Fill Can Help You Avoid Creating Invalid Contracts
Mitigate your risks of generating invalid contracts by investing in a paperless solution like Fill. Our integrated software can help you streamline your contract management workflow without sacrificing industry regulatory compliance and contract security. Using Fill, you can enjoy the following benefits:
- Free contract templates. You don’t need to start drafting a contract from scratch. Simplify the drafting process by using our free and customizable contract templates.
- Signer ID verification. Your legal documents need to be safe from security breaches such as unauthorized access. Use Fill to ensure your high-level contracts can only be accessed by authorized employees and run multiple authentication checks.
- Cloud-based storage. Your most confidential documents and contracts can be safely stored in our centralized online repository. You can also digitally archive your legal agreements and create backup files in an accessible virtual storage.
- Audit trails and logs. Use our machineless solution to keep an up-to-date record of your document workflow. With it, you can seamlessly create error-free audit reports in automation.
- Industry compliance. Our tool is rest assured compliant with all applicable laws such as HIPAA, GDPR, UETA, and the ESIGN Act.
- Legally valid eSignatures. Enforceability is always a top priority in contract management. Ensure that your agreements are tamper-proof and legally valid by utilizing digital signatures during the contract signing stage.
Create Valid And Enforceable Contracts With Fill
Make contract management a smooth-running process with Fill. Enforceable agreements can be made more efficiently with the aid of a paperless solution that’s trusted by industry professionals. Whether you’re in healthcare, finance, or legal, Fill is the ideal solution to eliminate inefficiencies in your contract management workflow.
We help businesses and professionals to remain compliant with industry laws and standards governing contracts. We also ensure that your contracts and agreements are 100 percent safe from any form of security breaches. You can also make use of our professionally and unambiguously drafted contract templates for free.
Experience convenience and efficiency in contract management. Sign up now and use Fill to create and manage enforceable agreements.