Contracts in common law legal systems, like the US and UK, require an offer, acceptance, and consideration. However, some legal systems have exceptions to protect parties. In the UK, the Unfair Contract Terms Act 1977 cancels or deems void certain terms. In the US, some contracts are void or voidable, such as those involving illegal subject matter or minors.
In many jurisdictions, a valid contract simply requires an offer, an acceptance and consideration. Common law legal systems, such as in the US and UK, tend to allow parties to determine the terms of a contract without interference from the courts. There are, however, exceptions to freedom of contract in some legal systems, which are intended to protect part of the contract. In the UK, for example, the Unfair Contract Terms Act 1977 addresses unfair contracts by making certain terms ineffective or subject to a reasonableness test. While the United States does not address “unfair contracts,” US law has equivalent legal provisions making some contracts void and others voidable.
In the UK, some provisions of a contract are considered inherently unfair or highly objectionable. In an effort to protect consumers from what may be considered unfair contracts, Parliament passed the Unfair Contract Terms Act (UCTA) in 1977. Under UCTA, certain terms are considered unenforceable or invalid, such as a term that excludes liability for negligence for death or personal injury, or a term which attempts to exclude implied terms of title to the subject matter of the contract. If a contract contains one of the terms listed in the Act as ineffective, then the term may be canceled from the contract, or the contract may be deemed void in its entirety.
In addition to ineffective terms, unfair contracts under UCTA also include contracts with terms that are subject to a reasonableness test. For example, if the originator of a contract includes a clause excluding his liability for breach of contract and the other party is a consumer, the reasonableness test must be passed for the term to be valid. The reasonableness test will examine the entirety of the circumstances to determine whether the term was fair to the party who did not draft the contract.
There are no legally incorrect contracts within the United States; however, US courts will declare some contracts void and others may be voidable. If the subject matter of a contract is illegal, such as the sale of illegal drugs, the contract is void. Other examples of void contracts are contracts with impossible clauses or contracts in which one, or both, or the parties are legally incapable.
A voidable contract is actually a valid contract that can be canceled at either party’s discretion. In most US states, a minor cannot legally enter into a contract. Consequently, if a party enters into a contract with a minor, the minor has the possibility to cancel the contract if he so wishes. The other party, on the other hand, is bound by the contract unless the minor chooses to cancel it.
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