In this article, we answer the question, “When is a Contract Unenforceable?” In doing so, we will discuss what it means for a contract to be unenforceable and explain eight situations in which a contract is unenforceable, including:
An unenforceable contract is a contract that is valid, but one that a court chooses to not enforce. Unenforceable is usually used in contradistinction to either void the contract or make it voidable. A void contract is a contract that is not legally valid. A voidable contract occurs when one party is not legally bound to the agreement. A contract may become the subject of a court case when a dispute arises among parties or when the enforceability of parts of the contract or the contract as a whole comes into question. A good example of a contract being unenforceable and becoming voidable is if a minor becomes a party to a contract; more on this example can be found in our article on “How Old Do You Need to be to Form a Contract?”
For a contract to be legally valid it must include an offer to enter into an agreement, an acceptance of that offer, and consideration (see our article on consideration). In order to be enforceable in a court of law, the contract must both be legally valid and the party against whom enforcement of the contract is sought must not have any valid defenses to breach of contract claims.
A court may find a contract to be unenforceable because of the contract’s subject matter because one party took advantage of the other party in the agreement, or because there is a lack of sufficient proof of the agreement. Additionally, there are eight specific criteria a court will use to determine whether or not a contract is unenforceable: lack of capacity, coercion, undue influence, misrepresentation and nondisclosure, unconscionability, public policy, mistake, and impossibility.
Lack of capacity to contract occurs when at least one party does not have the ability to understand what it is he or she is agreeing to. If it appears that one party does not have this reasoning capacity to fully understand the terms of the agreement, the contract may be found unenforceable against that person.
Common examples of a contract being unenforceable due to lack of capacity are when one side is too young or when one party has a mental disability that prevents him or her from understanding the agreement and its implications. The purpose of finding a contract to be unenforceable due to lack of capacity is to prevent one party from taking advantage of someone who does not have the reasoning ability to make a decision to form a contract.
A contract signed under coercion, or duress, will be unenforceable. To prove coercion, there must be evidence that indicates someone was threatened into agreeing to the terms of the contract. A common example of coercion is blackmail. For a court to deem a contract unenforceable due to coercion, sufficient evidence must be gathered for proof that a party agreed to a contract while under financial or physical duress.
Undue influence refers to a party who persuades another party to enter into an agreement by taking advantage of the parties’ relationship and uses pressure tactics to encourage the other into forming a contract. To prove undue influence, the one party must prove the other used excessive pressure during the process and that, for whatever reason, he or she was susceptible to that pressure. To prove undue influence, the party could also provide evidence that the other exploited a confidential relationship to influence the formation of the contract. Similar to lack of capacity and coercion, a contract may be unenforceable because of undue influence to protect one party from being taken advantage of by another party.
Misrepresentation generally refers to a false statement from one party, or concealment of information on a matter concerning the contract. If it’s found that any fraud or misrepresentation occurred during the negotiation process, the resulting contract will most likely be held unenforceable.
Nondisclosure is essentially misrepresentation through silence, meaning one party neglected to disclose a pertinent fact regarding the agreement. In the case of nondisclosure, courts will consider whether a party had a duty to disclose the information, or if the other party could’ve easily accessed the same information another way. Material facts are generally those that each party has a duty to disclose.
Unconscionability refers to a term in the contract, or possibly the contract in its entirety, that is so decisively unfair that the contract cannot exist the way it presently stands. When scrutinizing the case, the court will look at whether one side has grossly unequal bargaining power, if one side had difficulty understanding the terms (due to language or literacy issues, for example), or whether the terms themselves were simply manifestly unfair.
If the court does find a contract to be unconscionable, it has other options rather than voiding the contract altogether. For example, the court may elect to enforce the conscionable parts of the contract and have the unconscionable terms rewritten.
Contracts that are found to be unenforceable based on public policy are intended not only to protect the parties involved, but also to prevent the contract and contracts like it from posing harm to society as a whole. Additionally, a court will never enforce a contract that includes something in its terms that’s already against state or federal law.
Some examples of contracts being held unenforceable because of public policy include an employer forcing an employee to sign a contract forbidding medical leave, an employer making an employee sign a contract that keeps them from joining a union, or a landlord forcing a tenant to sign a contract forbidding medically necessary companion animals from living at the residence.
Unenforceability of a contract doesn’t always have to deal with ill-intent or bad faith. Sometimes an honest mistake could be made in the contract that renders it unenforceable. If one party is responsible for the mistake, it’s called a unilateral mistake. If both parties are at fault, it’s referred to as a mutual mistake. The mistake in question must have been related to something important in the agreement and have a significant effect on the exchange per the agreement. In either the case, the terms of the agreement that contain the mistake must be rewritten in order for the contract to be enforceable.
In some instances, a contract will be deemed unenforceable because it would be impossible or impracticable to carry out its terms. Something being too difficult or too expensive could be grounds for impossibility. Another good example could be the transaction of a crop that was wiped out during a natural disaster. If there was a contract that the crop is to be sent somewhere, the contract would be unenforceable as it would be impossible for the one party to send something that no longer exists.
To prove impossibility, the one party will need to gather evidence to show it cannot complete its duty due to an unexpected event that it has no control over, or the party must prove that performing its duty to the contract is much more difficult or expensive now because of an outside event.
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