When is a contract considered void?

A contract is considered void when it contains illegal terms because such contracts are unenforceable by law. This means that if the subject matter of the contract is illegal or if it involves activities that are against public policy or statutes, the contract cannot be upheld in a court of law. The legality of the terms is fundamental to the validity of any agreement; if the terms are inherently illegal, the entire contract is rendered void from the outset.

In contrast, a mutual mistake may lead to a contract being voidable, where one or both parties have the option to rescind it, but it is not void by nature. Similarly, if only one party fails to perform, it typically results in a breach of contract, which can lead to remedies or damages but does not inherently void the contract itself. If both parties agree to rescind, they may mutually decide to cancel the contract, but this does not denote that the contract was void to begin with; instead, it signifies a consensual termination of the agreement. Thus, the presence of illegal terms is the clear indicator that a contract is void.