Validity and Enforceability of Contracts

The validity of a contract can be affected when certain circumstances or "vitiating factors" are present. Whilst many nonlawyers believe that people have the freedom to contract as they see fit that is not absolute as there may be laws and legislation governing: unjust, unfair or unconscionable terms and other situations that involve fraud, misrepresentation, mistake, a lack of capacity, duress and so on.

One example of a vitiating factor is the law in relation to mistake. Essentially there can be three kinds of mistakes such as a common mistake (where both parties make the same mistake), a mutual mistake (where the parties make different mistakes) and unilateral mistake (where only one party is mistaken). One of the difficulties that exists in relation to common law mistake arises due to the tension between the objective theory of contract law and the subjective views held by someone mistaken.

Potential Scenarios - Affecting Whether a Contract is Valid and Enforceable

  • The other party had substantially more bargaining power over the situation, and you were at a special disadvantage so that you entered into a deal because of improper pressure;
  • We both made a common mistake about the item as it in fact does not exist so that delivery is impossible and money has been spent on the faith it would be delivered;
  • Making a payment to the tax office under a mistaken belief that it was due when it was not in circumstances where the tax office knew it was not due;
  • Being threatened to enter into a contract for fear that physical harm might come to you;
  • If you are a disabled person, such as someone who is blind, and you signed an agreement when in fact what you signed was radically different to what you were told it was.

Important Quotes in Cases on the Validity of Contracts

The class of persons who can avail themselves of the defence is limited. It is available to those who are unable to read owing to blindness or illiteracy and who must rely on others for advice as to what they are signing; it is also available to those who through no fault of their own are unable to have any understanding of the purport of a particular document. To make out the defence a defendant must show that he signed the document in the belief that it was radically different from what it was in fact and that, at least as against innocent persons, his failure to read and understand it was not due to carelessness on his part. Finally, it is accepted that there is a heavy onus on a defendant who seeks to establish the defence - Petelin v Cullen [1975] HCA 24

Let Us Help You

  • consider some of the options for dealing with unjust, unfair or unconscionable terms in light of the Contracts Review Act (NSW), the Australian Consumer Law and equitable principles;
  • see if the contract can be rescinded due to undue influence;
  • seek rescission where the contract is voidable due to unconscionable conduct;
  • oppose applications to rescind contracts due to unsconscionable conduct;
  • get legal advice about whether common law mistake or perhaps mistake in equity could assist where you or the other party laboured under a misapprehension;
  • deal with a contract that is affected because someone was disabled and the document signed was radically different to what the disabled person thought

* This content does not purport to give legal advice. Readers must obtain their own legal advice, that applies to the particular circumstances of their case, before taking any action at all.