Unenforceable Contract: Everything You Need to Know
An unenforceable contract is a written or oral agreement that will not be enforced by courts.3 min read
2. What are the Requirements for Enforceable Contracts?
3. Lack of Capacity
4. Duress, Undue Influence
5. Misrepresentation, Nondisclosure, and Fraud
7. Public Policy, Illegality
Updated October 13, 2020:
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.
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.
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.
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.
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.
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.
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.
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