Under certain circumstances, a seemingly valid contract may be struck down as unenforceable. It can potentially happen even if both parties seemingly agree to all of the contract's terms.
Courts may refuse to enforce a contract for a number of reasons. So how does the law determine which promises are enforceable contracts and which are not?
Here are five common errors that can make contracts unenforceable:
- Lack of capacity. A person must have the legal ability to form a contract in the first place. A person who is unable, due to intoxication or mental impairment, to understand what she is doing when she signs a contract may lack capacity to enter into a contract. In that case, the contract may be unenforceable.
- Duress, undue influence, misrepresentation and fraud. Getting consent for a contract through sketchy ways -- such as coercion, threats, false statements (as well as misleading silence) and improper persuasion -- can render a contract unenforceable. The court may strike the contract down as unenforceable or the victim of the unfairness can void it.
- Unconscionability. If the process of making a contract or terms in the contract are shockingly unfair to one party, then a court may deem a contract unenforceable. The court will look at whether a party had unequal bargaining power or difficulty understanding the terms (due to literacy or language barriers, for example), and whether the terms were inherently unfair.
- Mistake. A contract can be found unenforceable because of the mistake of one party (called a "unilateral mistake") or both parties (called a "mutual mistake"). To be made unenforceable, the mistake must have been important and must have significantly affected the contract bargaining or performing process. Remember, failure to read the contract doesn't make a contract unenforceable or voidable.
- Public policy. Some contracts are unenforceable because allowing such contracts could go against the goals of public policy -- namely, public health and safety. This includes contracts for illegal drug sales and sexual services, as well as contracts that bargain away employees' legally protected rights (like the right to unionize or to receive medical leave, for example).
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