THE LEGAL EFFECT OF AGREEMENT

It has already been pointed out that not all agreements are recognised as contracts in law, but it must also be borne in mind that, even where agreements do constitute contracts, they may not be given full effect by the courts. The legal effect of particular agreements may be distinguished as follows:

• Valid contracts

These are agreements which the law recognises as being binding in full. By entering into such contractual agreements, the parties establish rights and responsibilities and the court will enforce these by either insisting on performance of the promised action or awarding damages to the innocent party.

• Void contracts

This is actually a contradiction in terms, for this type of agreement does not constitute a contract: it has no legal effect. Agreements may be void for a number of reasons, including mistake, illegality, public policy or the lack of a necessary requirement, such as consideration. The ownership of property exchanged does not pass under a void contract and remains with the original owner. The legal owner may recover it from the possession of the other party or, indeed, any third party, if it has been passed on to such a person. This is so even where the third party has acquired the property in good faith and has provided consideration for it.

• Voidable contracts

These are agreements which may be avoided, that is, set aside, by one of the parties. If, however, no steps are taken to avoid the agreement, then a valid contract ensues. Examples of contracts which may be voidable are those which have been entered into on the basis of fraud, misrepresentation or duress. In relation to voidable contracts, the appropriate remedy is rescission of the original agreement. The effect of rescission is that both parties are returned to their original, pre-contractual position. Consequently, anyone who has transferred property to another on the basis of misrepresentation, for example, may recover that property. However, goods which have been exchanged under a voidable contract can be sold to an innocent third party. If such a transfer occurs before the first innocent party has rescinded the original contract, then the later innocent party receives good title to the property. This means that the property is now theirs and the innocent party to the first transaction can only seek a remedy such as damages against the other, non-innocent party to that contract.

• Unenforceable contracts

These are agreements which, although legal, cannot be sued upon for some reason. One example would be where the time limit for enforcing the contract has lapsed. The title to any goods exchanged under such a contract is treated as having been validly passed and cannot, therefore, be reclaimed. The following four chapters will consider the major substantive rules relating to contracts but, first, it is necessary to issue a warning in relation to examinations. Together with company law, contract forms the main component in most syllabuses. It is not possible to select particular areas as more important and, therefore, more likely to be examined than others. Unfortunately, any aspect of contract may be asked about, and so candidates must be familiar with most, if not all, aspects of the subject. For example, it may be legitimate to expect a question on the vitiating factors in relation to contracts It is not possible, however, to predict with any confidence which particular vitiating factor will be selected. To restrict one’s study would be extremely hazardous. The candidate may have learnt mistake and misrepresentation very well, but that will be to no avail if the question asked actually relates to duress, as it might very well do. The warning, therefore, is to study contract thoroughly. Equally, students should be aware that a knowledge of remedies is of particular importance to all contractual topics; for example, an examination question on offer and acceptance or on misrepresentation may also require reference to appropriate remedies.