What is an Unenforceable Contract?
An unenforceable contract is a valid contract that the court chooses, for specific reasons, not to enforce. An unenforceable defense is commonly used in contradistinction to void the contract or make it voidable. Below explains a what makes a contract void or voidable:
- Void : A void contract is a contract that is not legally valid
- Voidable : A voidable contract is one in which one party is not legally bound by the agreement.
Disputes will commonly arise between two parties, which triggers questions about the enforceability of a binding contract. A perfect example of a contract becoming voidable is in cases where a minor has signed a contract.
Here is an article about age requirements for a legal contract.
What Makes a Contract Unenforceable?
To determine what makes a contract unenforceable, it is easier to start with the question of what makes a contract enforceable. An enforceable contract is a legally binding agreement between two or more parties. To be enforceable, a contract must be legally valid, and the defending party must not have any valid defenses against breach of contract.
Most contracts do not need to be on paper to be considered enforceable, but those that aren’t are harder to prove in court. Three elements define a legally binding and enforceable contract:
- An offer
- Acceptance of that offer
- Consideration
The first two are self-explanatory, but the last warrants a brief explanation. In legal terms, consideration is an exchange of promises to do or not do something. For example, a common consideration is money in exchange for services.
The court will not enforce a contract if it finds that one party was taken advantage of or if there is a lack of proof of an agreement. To determine whether a contract is enforceable, the court uses eight key criteria:
- Lack of Capacity
- Coercion
- Undue Influence
- Misrepresentation and Nondisclosure
- Unconscionability
- Public Policy
- Mistake
- Impossibility
Here is an article about unenforceable contracts.
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Examples of an Unenforceable Contract
Below are the key criteria the court looks for to determine whether a contract is considered unenforceable:
- Lack of Capacity: This happens in a contract when one party doesn’t fully grasp what they agree to. It is a way to take advantage of someone else and, if proven, could result in an unenforceable contract. An excellent example is when an agreement is made with either a minor or someone with a mental disability that prevents them from understanding the full gravity of the agreement they are signing. In either case, the court would not enforce the contract.
- Coercion: Coercion is when a party is coerced, or forced, into signing a contract. If this is proven, the contract would be unenforceable, but there has to be evidence proving the threatening behavior. A good example of coercion in a contract is blackmail.
- Undue Influence: This refers to one party persuading another party to sign an agreement, taking advantage of their relationship. The court does not tolerate this level of deception and, if proven, would likely result in an unenforceable contract.
- Misrepresentation: Misrepresentation, as the name suggests, is when you only tell part of the story in a contract. Suppose the courts found a party involved in a contract to have concealed information about a matter concerning the contract. In that case, it could result in an unenforceable contract.
- Nondisclosure: Nondisclosure is another form of concealment, but it involves misrepresenting the issues related to the contract by omission. If it is proven that any party in a contract neglected to disclose pertinent information regarding the agreement, it could result in an unenforceable contract. Usually, in these cases, the courts will consider whether the accused party was obliged to share the information or if the other party could have gotten it another way.
- Unconscionability: This refers to something in the contract, or in some cases the entire contract, that is so unfair that the contract shouldn’t exist the way it is written. The court will consider if one side has unequal bargaining power, if one of the parties is having difficulty understanding the terms of the agreement (i.e., they can’t read the language), or if the contract itself is unfair. In the case of unconscionability, deeming the contract unenforceable isn’t the only option. The court could elect to enforce a part of the contract, the conscionable parts, and have the other part rewritten.
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Public Policy:
Contracts that the court finds unenforceable based on public policy defense are meant to protect society and the parties involved. Also, if a contract goes against an existing State or Federal law, the court will not enforce the contract.
A prime example of this involves a real estate contract. For instance, in a landlord/tenant dispute, if a landlord forces a tenant to sign a lease agreement that doesn’t allow for a medically necessary companion animal, it could be considered unenforceable. - Mistake: Sometimes, it boils down to a little mistake. It could be a unilateral or mutual mistake where both parties are responsible. Regardless, the court will consider whether the point in question was important enough to have a huge effect on the agreement. In many cases, the courts will require that the mistake be rewritten for the contract to be enforceable.
- Impossibility: Sometimes, contracts are created in such a way that it would be impossible or impractical to carry out. If something is too expensive, it could be considered enough evidence for an impossibility ruling.
Here is an article about conditions where your contract can be unenforceable.
Who Can Review a Contract to Make Sure it is Enforceable?
Many contracts may appear legal but have no legal standing in court. Therefore, it is important to seek the counsel of a licensed
business contracts lawyer
before entering into a contract agreement.
Here is an article about what a contract lawyer does.
How to Avoid Signing an Unenforceable Contract
There are two ways to avoid signing an unenforceable contract:
- First, seek advice from a business contract lawyer. They can review anything before you sign and help point out any potential pitfalls.
- Judge every contract based on each of the examples of unenforceable contracts above. Again, the more you know, the better off you are.
Here is an article about what makes a contract binding.
Difference Between an Unenforceable Contract and a Void Contract
A void contract has no legal standing, whereas unenforceable contracts are valid contracts that cannot be enforced in court because of legal requirements or evidentiary issues.
Here is an article about unenforceable contracts vs. void contracts.
Get Help With an Unenforceable Contract
If you are concerned about a contract you’ve signed or one you think you may be signing, give us a call. Let us help ease your fears by checking them out for you.
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