A contract is simply an agreement between parties, which be made orally or in writing, establishing and delineating an obligation of the parties. There are a number of legal remedies allowing participants to set aside a contractual obligation. A contract may be unenforceable or it may be voided or rescinded, by agreement of the parties.
A contract may be voided due to misrepresentation on the part of one or more of the parties involved. That is, if the contract was based upon false information or misrepresentation of a material fact by any of the parties (known as fraud in inducement) or if one or more parties unknowingly entered into the contract (known as fraud in factum). In either case, the contract could be rescinded. Also, depending upon the type of misrepresentation, damages may be awarded.
Another reason for setting aside a contract is when a mistake is made by one or more of the parties. This means that the parties may have an incorrect understanding regarding the obligations of the contract. There are several types of mistakes that can be made under the law, including unilateral, mutual and common. Common mistakes occur when both parties have misunderstood the facts of the contract. In that case, the contract can be voided if the mistaken belief fundamentally renders it impossible for the contract to be enforced. A mutual mistake occurs when there is a mutual misunderstanding of the terms of the contract. Each party to the contract may believe the terms of the contract are different. A contract under these terms may not be voidable if acceptable terms can be established. When only one party holds a mistaken belief regarding the contract, it is considered a unilateral mistake. In such case, the contract can generally only be voided if it is determined that a non-mistaken party was aware that the other party had a mistaken belief and was attempting to take advantage of that fact.
Duress or under influence can also create a situation where a contract may be voided. The party who wants to set aside the contract must prove that a threat was made and that the threat was why they entered into the contract. The other party must then attempt to prove that the threat in no way caused the other party to enter into the contract. An equitable doctrine of undue influence is when one person has taken advantage of their power over another person. This can exist in a familial relationship, such as parent and child, or attorney and client. The court has discretion over such a situation and can determine if a special relationship does indeed exist.
One other reason why a contract may be vitiated is in a case where one or more parties lack the capacity under law to enter into a contract, either due to mental incapacitation, disability, drunkenness or age. This can also happen when an agent for a company or individual may not have the power to enter into such a contract.
A contract based on an illegality, such as the desire to cover a crime, would be unenforceable, as would employment contracts obligating someone to work for less than minimum wage or forfeiting other rights, such as workers compensation benefits.