Key Takeaways

  • Contract law legality requires that an agreement serve a lawful purpose, involve competent parties, and meet specific legal requirements to be enforceable.
  • A valid contract must include elements such as offer, acceptance, consideration, capacity, mutual assent, and legality.
  • Illegality — such as agreements involving crimes or fraud — renders a contract void and unenforceable.
  • Contracts must be entered into voluntarily, without coercion, misrepresentation, or undue influence.
  • Public policy considerations can affect legality — even lawful terms may be void if they harm society or violate statutory protections.
  • Remedies for illegal or unenforceable contracts are limited, but equitable doctrines may occasionally provide relief in cases of partial performance.

Legality of the contract between parties is a legal agreement where obligations are mutually agreed upon and that the law can enforce. Some states consider the element of consideration to be an acceptable substitute. There are potential remedies when a breach of contract happens such as reliance damages, general damages, specific performance, and consequential damages. Since contracts are legal, the parties can count on the law to enforce them.

Definition of a Contract

The state common law is in charge of governing contract law, and while it's frequent throughout the country, there are some particular court interpretations of a certain part of the contract that can vary between every state. If a promise gets breached, the law will provide remedies for the party who was harmed, which is often monetary damages.

There are basic elements that are mandatory to be in an agreement and are legally enforceable, which include the following:

  • Adequate consideration
  • Legality
  • Capacity
  • Mutual assent (with a valid offer and acceptance)

Importance of Legality in Contract Formation

Legality is a fundamental requirement of contract law and serves as a safeguard to ensure that agreements uphold public order and legal standards. Even when a contract contains valid offer, acceptance, and consideration, it will not be enforceable if its subject matter is unlawful or contrary to public policy. Courts scrutinize contracts to ensure they do not involve illegal activities, such as fraud, criminal conduct, or violations of regulatory statutes.

Legality also extends beyond overtly illegal acts. A contract that, on its face, seems lawful can still be unenforceable if its terms are deemed contrary to public interest. For example, agreements that restrain trade, waive essential legal rights, or encourage unlawful conduct may be struck down even if both parties consented. Thus, contract law legality acts as a threshold test — without it, a document cannot qualify as a binding legal agreement.

Elements - Consideration and Mutual Assent

Contracts happen when there's a duty to consider since it's a promise that one of the parties made. In order to be binding legally, a promise needs to be exchanged for consideration that's adequate. There are two types of consideration - the benefit-detriment theory of consideration and the bargain theory of consideration. According to the benefit-detriment theory of consideration, a valid consideration only exists when there's a promise that's made to the promisor's benefit or to the promisee's detriment. This fairly and reasonably obligates the promisor to make a promise in exchange for something that the promisee will give them.

As an example, promises are just gifts that aren't enforceable since the grantor's personal satisfaction from the act of being generous isn't usually considered enough detriment to consist of adequate consideration. According to the bargain-for-exchange consideration theory, consideration exists if a promisor makes a promise in exchange for something else. The important condition here is that the promise was specifically given something to have the promise be made. This theory is different as the focus in bargaining for exchange is the parties' main motive for making any promises in the first place.

Capacity and Competence of Parties

For a contract to be legally valid, all parties must have the legal capacity to enter into the agreement. Capacity ensures that parties fully understand the nature and consequences of their commitments. Those lacking capacity — such as minors, individuals with certain mental impairments, or those under the influence — may render a contract voidable or unenforceable.

Key considerations include:

  • Age of majority: Most jurisdictions require parties to be 18 or older to enter enforceable contracts. Contracts with minors are typically voidable at the minor’s discretion.
  • Mental competence: Parties must possess the mental ability to understand terms and consequences. Contracts signed by those deemed legally incapacitated are often void.
  • Authority and representation: In commercial contexts, individuals must have the authority to bind their organization. Unauthorized signatories can invalidate an agreement.

Capacity protects the integrity of contractual relationships by ensuring that obligations are entered into knowingly and voluntarily.

Required Characteristics

A contract needs to have a legal purpose in order for it to be enforceable. If Steve decides to hire Paul to kill his nemesis, Susan, Steve will create an agreement with all of the responsibilities Paul has, with the main one being him getting a gun and shooting Susan in the head. The agreement will also state how much Steve will pay Paul when the task is complete. However, creating a contract of murder for hire is illegal, so if Paul doesn't do his duties, Steve cannot bring this to court. This contract is considered unenforceable.

Anyone can enter a contract with the exception of certain felons, minors, and those of unsound mind. The contract should identify who the parties are by name, but sometimes titles and addresses may be required. In an agreement such as a sales agreement, the names buyer and seller will be used to distinguish which party is which. The parties must have a meeting of the minds where they all mutually agree to the contract. One party will extend an offer and the other one will accept it.

Consent isn't considered free when it's obtained through fraud, duress, undue mistake or influence, or menace. There have been many books written about the complexities of these factors. If a person has a gun pointed at their head when they sign a contract, they didn't consent to the agreement and can revoke it. The law must apply to each individual case, as not all cases are clear-cut.

If Joe signs a contract with Tim's Tree Trimming, the contract will list what scope of work the company will perform on Joe's property. Tim and Joe sign the contract, indicating they've come to a mutual agreement about what work will be done, when it will be completed by, and for how much. Every party in the contract needs to agree that they'll give up something valuable in exchange for a benefit they'll receive from the other party.

Public Policy and Enforceability

Even when a contract meets all standard legal requirements, it may still be deemed unenforceable if it violates public policy. Courts consider public policy to prevent agreements that, while not illegal per se, could harm societal interests. Examples include contracts that:

  • Restrain trade or competition (e.g., overly broad non-compete clauses).
  • Interfere with family relationships (e.g., agreements encouraging divorce).
  • Exploit unequal bargaining power (e.g., unconscionable terms in consumer contracts).

Public policy considerations are dynamic and evolve with societal norms. For instance, clauses that once were enforceable may become void as legal standards change. This evolving nature underscores why periodic review of contract terms is essential for ongoing compliance.

Remedies and Effects of Illegality

When a contract is found to be illegal, courts generally refuse to enforce it. This means that neither party can sue for breach or compel performance. However, there are nuanced exceptions in equity that may allow for partial remedies, such as:

  • Restitution: In limited cases, a party who conferred a benefit under an illegal agreement may recover the value to prevent unjust enrichment.
  • Severability: If only part of a contract is illegal and that portion can be separated, the remainder may still be enforceable.
  • Quasi-contractual relief: Courts may provide limited remedies when one party is significantly less culpable, such as in cases involving duress or fraud.

These exceptions are rare, emphasizing the importance of ensuring full compliance with legal standards before executing an agreement.

Frequently Asked Questions

  1. What does “legality” mean in contract law?
    Legality refers to the requirement that a contract’s purpose and terms must comply with the law and public policy. Illegal agreements are void and unenforceable.
  2. Can a contract be legal but still unenforceable?
    Yes. Even lawful agreements may be voided if they violate public policy, such as contracts with unconscionable terms or those that restrain trade.
  3. What happens if one part of a contract is illegal?
    If the illegal provision can be separated without affecting the rest of the agreement, courts may enforce the remaining terms through a principle known as severability.
  4. Are contracts with minors automatically void?
    Generally, contracts with minors are voidable at the minor’s discretion. However, certain contracts, like those for necessities, may still be enforced.
  5. How can businesses ensure their contracts are legal?
    Parties should confirm that the agreement complies with statutory requirements, avoids prohibited terms, and aligns with public policy. Consulting a qualified attorney is highly recommended.

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