Key Takeaways

  • Definition of Unenforceable Contract: Contracts become unenforceable due to issues like coercion, misrepresentation, illegality, or unforeseen events.
  • Impact of Contract Elements: Valid contracts must meet specific legal requirements such as capacity, legality, and mutual agreement.
  • Circumstantial Defenses: Coercion, undue influence, or mistakes during signing can void a contract.
  • Terms of the Contract: Contracts containing illegal, unfair, or unclear terms are often unenforceable.
  • External Events: Changes in law or unforeseen events (like natural disasters) can render contracts unenforceable.
  • Specific Distinctions: Differences between void and voidable contracts, and how they can be addressed.
  • Action Steps: Seek legal advice to ensure the enforceability of a contract or address issues in existing ones.

What makes a contract unenforceable? A contract is unenforceable in the following situations:

  • Coercion or deception was used in negotiating it.
  • Enforcing it is not for the good of society.
  • One of the parties to contract proves that fulfilling the contract is impossible.
  • Mistakes were made during the signing.
  • Fulfilling the terms of the contact has become illegal.

What Is an Unenforceable Contract?

An enforceable or legal contract is one that can be enforced by the courts. Although contracts are signed to minimize the possibility of disputes between entities, there are few legal areas that are as fraught with disputes as contracts. When one or both parties to a contract fails to live up to his part of the contract, the aggrieved party may naturally want to seek the intervention of a court. Many people find out that the contract they signed is not valid in a court because courts have high standards for contracts.

A contract can be rendered unenforceable because of circumstances surrounding its signing, the terms of the contract, and events that happen after the signing of the contract.

Contracts That Are Unenforceable Because of Circumstances Surrounding the Signing

There are a number of issues before or during the signing of the contract that courts can use as valid grounds to declare a contract unenforceable:

  • Coercion. A contract can be declared unenforceable if a court is convinced that coercion was used to facilitate the signing. An example would be if blackmail was used as leverage to facilitate the contract. Courts can also declare a contract unenforceable when one of the parties to the contract has undue influence on the other. This might occur when one of the parties to the contract was a minor or when one of the parties was illiterate and could not read and scrutinize the terms of the contract.
  • Deception. If fraud was involved in the facilitation of the signing, the contract can be declared unenforceable. For example, when a real estate owner misleads a buyer about the size of a property he is selling, the contract can be declared unenforceable. The courts may also declare a contract unenforceable because one of the parties deliberately withheld information pertinent to the contract before the signing.

Understanding Contractual Capacity

A fundamental requirement for any enforceable contract is that all parties involved have the legal capacity to enter into an agreement. Capacity refers to the ability to understand the terms and consequences of a contract. Factors that may affect contractual capacity include:

  • Age: Contracts with minors (under 18 in most jurisdictions) are typically unenforceable unless exceptions apply, such as agreements for necessities.
  • Mental State: If one party was mentally incapacitated due to illness, disability, or intoxication at the time of signing, the contract might be deemed unenforceable.
  • Volition: Parties must willingly and knowingly enter into the agreement. If coercion or undue influence is present, this requirement is not met.

Contracts That Are Unenforceable Because of the Terms of the Contract

Courts have declared contracts unenforceable because of some terms in the contract. Examples of terms that may lead to trashing a contract include the following:

  • A contract to do something illegal. An enforceable contract must be made for a legal purpose. Courts generally don't enforce contracts that have terms that require one of the parties to do something that is against the good of the society. This includes contracts that require parties to do things that involve gambling or sexual immorality. Contract terms should generally be in line with the laws of the jurisdiction where they are signed.
  • Unfair contracts. A contract may be declared unenforceable because the financial penalties for breach of some of the terms are unfair. Alternatively, courts may declare that only those terms are unenforceable or replace the terms.
  • Mistakes. A contract may be declared unenforceable when one or both of the parties make a mistake during the signing. For example, imagine a contract signed for supply of goods. During the negotiations, both parties agree that goods will be delivered at a cost of $5,000. However, in the contract, a printing error is made and the cost shows up as $500. Such a contract can be declared unenforceable because of the mistake.

Unconscionability and Overly Restrictive Terms

Contracts may also be considered unenforceable if they contain terms that are deemed unconscionable—meaning grossly unfair or oppressive to one party. Courts will analyze factors like:

  1. Imbalance of Power: When one party has significantly more power or leverage in negotiations.
  2. Unclear or Hidden Terms: Fine print or buried clauses that disadvantage one party.
  3. Excessive Penalties: Provisions that impose disproportionate financial or legal penalties for breach.

For instance, if a contract mandates exorbitant fees for minor infractions, courts may strike down those terms as unenforceable while leaving the rest of the agreement intact.

Contracts That Are Unenforceable Due to Events That Happen After the Signing

A contract can be declared unenforceable because of issues that arise after the signing.

  • When enforcing the contract becomes impossible. A contract may be declared unenforceable when fulfilling it becomes impossible. This may happen when a farmer who agrees to supply corn to a food processing company. If a storm subsequently wipes out a farmer's crop, a farmer can successfully ask to be released from the contract on the grounds that it is impossible to fulfill.
  • When enforcing the contract becomes illegal. Courts don't enforce contracts that promote illegal activities. Some terms of a contract can become illegal because of change of laws. Such a contract is generally unenforceable.

Force Majeure and Impossibility

Force majeure clauses are often included in contracts to address unforeseen events that prevent fulfillment. Even in their absence, courts may excuse performance due to:

  • Natural Disasters: Hurricanes, earthquakes, or floods making contract performance impossible.
  • Government Actions: Regulatory changes or trade embargoes invalidating contractual terms.
  • Material Changes: Drastic, unforeseeable changes in market conditions or resources.

For example, a supply contract may become unenforceable if raw materials critical to the agreement are suddenly banned by new laws.

Frequently Asked Questions

  1. What makes a contract unenforceable?
    A contract becomes unenforceable due to issues like coercion, illegality, unconscionable terms, lack of capacity, or unforeseen events like natural disasters.
  2. What is the difference between void and unenforceable contracts?
    A void contract is invalid from the start, while an unenforceable contract may meet legal standards but cannot be upheld due to external factors or defenses.
  3. Can a contract be enforced if one party is a minor?
    Contracts with minors are generally unenforceable unless they involve necessities or the minor has obtained legal emancipation.
  4. What are some examples of force majeure events?
    Examples include natural disasters (hurricanes, earthquakes), wars, pandemics, or significant regulatory changes that hinder performance.
  5. How can I ensure my contract is enforceable?
    Ensure all legal requirements are met, avoid unconscionable terms, include clear clauses, and consult an attorney for a thorough review.

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