Setting Aside the Contract

Setting aside the contract essentially means to void the contract. It is a legal term that means the court’s action to cancel, annul, or void the contract. The contract will be deemed voided, ineffective or unenforceable.  Voidness of a contract means that a contract never existed and it implies that either one or even both of the parties can declare a contract to be ineffective. Unenforceability of a contract suggests that neither of the parties have recourse in a court for remedy. An ineffective contract implies that the contract was terminated by the order of a court. A contract can also be rescinded, which means to un-make the contract.

Brief Historical Background

It has been said that contracts provide the basis for the economy in the United States, as well as other countries across the globe. All business transactions are built on contractual relationships and therefore they are an important part of the economic development. As the consumer and business worlds depend on contracts, the enforceability of contracts is pertinent. Even the use of credit and capital depend on contracts – the consumer enters into a contract to pay the balance owing at a future date.

Centuries ago, merchant tribunals were the custom of dealing with resolving contract disputes and they fought to avoid the very time-consuming court procedures. This was not just occurring in the United States but in England as well. By the 18th century, merchants’ tribunals to deal with contract disputes went by the wayside and judges played a bigger role. Consequently, common contract law as we know it today came into existence.

Precedent Setting Cases

There are some past cases for setting aside contracts that have set precedence in this area of contract law. One such case is Cundy v Lindsay from 1878, where a con man posing as a retailer took an order from a merchant, sold it to a third party who was innocent and then did not pay the merchant.

As the merchant never received payment for the order, he sued the third party. The contract was deemed void and therefore the third party had to return the goods to the retailer.

Another precedent setting case for contract law is one involving the doctrine of mutual mistake. The case of Sherwood v Walker had enormous significance in evolving contract law to where it is now. The case involved a cow that was deemed barren at the time the contract was made but later was found to be with calf. As the cow had been offered at a lower rate due to its barren nature, the seller wanted the contract voided when he discovered the cow was in fact not barren. In the courts, the contract was considered voidable based on mutual mistake (both parties thought the cow was barren) and therefore it was set aside. This precedent setting case is a staple in a first year law class, discussions as well as textbooks.

Defenses

There are four main reasons why a contract would be allowed to be set aside: misrepresentation, mistake, duress and undue influence and lastly, illegality. The misrepresentation reason means that one party has made a false statement of fact to the other party, which had the effect of inducing that party into entering the contract. The “mistake” grounds to cancel a contract is that there is an incorrect understanding by the parties of the contract. There are 3 types of mistakes that can be made with a contract: mutual mistake, unilateral mistake and common mistake. Duress means that there was a threat of harm made that compels a person to enter a contract against his or her wishes. Undue influence involves someone taking advantage of his or her position of power over another person that he or she has a special relationship with. Illegality is used if a contract is made by illegal means and it is done on purpose.