Key Takeaways:

  • An unenforceable contract is one that cannot be upheld in court due to legal deficiencies such as lack of capacity, duress, or illegality.
  • Essential elements of an enforceable contract include offer, acceptance, consideration, and mutual assent.
  • Various defenses, such as misrepresentation, nondisclosure, unconscionability, and public policy violations, can render a contract unenforceable.
  • Unenforceable contracts can sometimes be remedied or adjusted, but significant issues may void them entirely.
  • A "voidable contract" differs from an unenforceable one as it can often be corrected through mutual agreement or legal remedies.

Unenforceable Contract

An unenforceable contract is a written or oral agreement that will not be enforced by courts. There are many different reasons that a court may not enforce a contract. Contracts may be unenforceable because of their subject matter, because one party to the agreement unfairly took advantage of the other party, or because there is not enough proof of the agreement. 

What are the Requirements for Enforceable Contracts?

To understand why a contract might not be enforced, it is important to first understand the requirements of a valid, enforceable contract.  An enforceable contract is a legally binding agreement between two or more people or business entities.  The people or entities entering into the agreement are called the “parties” to the contract.  With a few exceptions, contracts do not need to be in writing to be enforceable but oral contracts are more difficult to prove. 

A legally binding enforceable contract requires an offer to enter into an agreement, acceptance of that offer, consideration, and no defenses for not enforcing the agreement.  Consideration is an exchange of promises to do or not do something.  One of the most common forms of consideration is money.  In a common enforceable contract, one party promises to pay another party money in exchange for a promise that the party receiving the money will receive a service. 

Some common defenses to enforcing a contract are lack of capacity, duress, undue influence, misrepresentation, nondisclosure, unconscionability, public policy, mistake, and impossibility.  If these exist an otherwise valid contract may be unenforceable.

Common Examples of Unenforceable Contracts

Certain agreements are commonly deemed unenforceable due to their nature or the circumstances under which they are made. Examples include:

  • Contracts involving illegal activities: Agreements for illegal goods or services, such as drug sales, are unenforceable.
  • Unbalanced non-compete clauses: If a clause overly restricts an individual’s ability to work elsewhere without justification, courts may refuse to enforce it.
  • Verbal agreements for high-value transactions: In many states, contracts exceeding a specific value, like real estate deals, must be in writing to be enforceable.
  • Contracts with unclear terms: Ambiguity or a lack of specific detail in the agreement can result in unenforceability.

Lack of Capacity

All parties to a contract must have legal capacity to enter into the agreement.  Parties who are under 18 years old, who are mentally impaired, who are intoxicated on drugs or alcohol, or who otherwise do not fully understand what they are doing when they agree to a contract may lack capacity.  If all parties do not have legal capacity, the agreement may not be enforced.

How to Handle Contracts Involving Minors

Minors generally lack the legal capacity to enter into binding agreements. However, there are exceptions:

  1. Necessaries: Contracts for essential goods or services, such as food or medical care, may still be enforceable against minors.
  2. Ratification: A minor may ratify a contract after reaching the age of majority, making it enforceable.
  3. State Variances: Laws vary by state, with some allowing enforceable contracts under specific conditions (e.g., emancipated minors).

Duress, Undue Influence

If one party uses an unfair advantage during contract negotiations to pressure the other party into entering into a contract, the contract will not be enforced.  The pressure used must be extreme for a contract to be considered unenforceable because of duress or undue influence.  For example, if one person uses a threat of violence to get the other person to sign a contract that contract will not be enforced. 

How Duress Affects Contract Remedies

When a contract is signed under duress, remedies often include:

  • Rescission: Canceling the contract entirely and restoring parties to their original positions.
  • Damages: Compensation for losses caused by the duress.
  • Court Modification: Adjusting terms to make the contract fair and enforceable, particularly in cases of economic duress.

Misrepresentation, Nondisclosure, and Fraud

Courts do not look favorably upon persons who use trickery to get another to enter into an agreement.  A contract may be deemed unenforceable if one party obtains the other party’s agreement by making false or misleading statements or omitting important information during discussions about entering into the agreement. 

Unconscionability

A contract is considered unconscionable when something about its terms or how it was formed are so unfair that it would “shock the conscience” if it were enforced.  A contract is not unconscionable just because one party had more bargaining power.  Employment contracts, for example, are routinely found enforceable even though the employer usually has more power to shape the terms of the agreement.  Contracts have been found unconscionable in situations where a very sophisticated business took advantage of a barely literate, uneducated consumer.

Depending on the circumstances, a court might decide the entire agreement is unenforceable or might just strike the parts it considers unconscionable from the agreement and enforce the rest of the contract.

Public Policy, Illegality

Courts won’t enforce contracts that agree to something against the law or the best interest of the public. For example, courts will not enforce an agreement to purchase illegal drugs. Nor will courts enforce a landlord-tenant agreement that requires a tenant to agree to live in conditions that do not meet health and safety code requirements.  The purpose of public policy and illegality grounds for non-enforcement is to protect society as a whole. 

When Public Policy Nullifies Agreements

Contracts that harm societal interests or violate legal standards are unenforceable. Common instances include:

  • Agreements to suppress evidence or witness testimony.
  • Contracts that infringe on labor laws, such as requiring excessive work hours without compensation.
  • Clauses that attempt to waive liability for intentional misconduct or gross negligence.

Mistake

Not all mistakes make a contract unenforceable but some will.  Mistakes can be “unilateral,” where only one party makes a mistake about the contract or “mutual.”  Contracts are more likely to be considered unenforceable where the mistake is mutual but sometimes even a unilateral mistake can serve as a basis for not enforcing a contract.  Only mistakes that are important to the agreement and impacted its creation or performance in a significant way can make a contract unenforceable.

Impossibility

Sometimes a contract that was valid when formed becomes impossible to carry out and for this reason will be unenforceable. Impossibility that is the fault of one party usually does not make a contract unenforceable. 

FAQ Section:

  1. What makes a contract unenforceable?
    A contract is unenforceable when it lacks legal validity due to issues like duress, illegality, or lack of capacity.
  2. Can an unenforceable contract be corrected?
    In some cases, yes. For example, modifying terms or obtaining proper documentation can address issues causing unenforceability.
  3. Is an oral agreement legally binding?
    Oral agreements can be binding, but they are harder to prove and may be unenforceable if state law requires a written contract for specific transactions.
  4. What’s the difference between a void and unenforceable contract?
    A void contract is invalid from the start, while an unenforceable contract is initially valid but cannot be upheld due to specific defenses.
  5. Can I enforce a contract signed under pressure?
    Contracts signed under duress may not be enforceable. Legal remedies often include cancellation or renegotiation.

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