Unenforceable Contracts: Common Causes for them

Enforceable and unenforceable contracts:

A contract can be either enforceable or unenforceable. An enforceable contract can be described as one against which a legal remedy would be available if the contract is not fulfilled. This means that the parties thereto can take legal recourse in case there is a breach of contract.

On the other hand, a contract is described as unenforceable when some statutory and legal requirements pertaining to it have not been met. For instance, an oral contract to purchase land cannot be enforceable given the fact that certain contracts of this type must be in writing. Similarly, sometimes the law prescribes the length of time within which legal action can be taken for certain specified contracts. Once the time limit is over, no legal remedy would be available if such contracts are not fulfilled, thus, rendering them unenforceable under law.   

What are unenforceable contracts?

An unenforceable contract is an agreement, whether written or oral, which is not enforced by the Courts. Even though the contract is valid, certain circumstances may make it unenforceable. Thus, it shall not be able to be brought to Courts for claiming the damages if any of the parties breach it.

Some of the reasons that render a contract unenforceable could be the non-existence of enough proof of the agreement, one party taking unfair advantage of the other, and so on.

What makes a contract enforceable?

It must be understood that there are certain requirements that need to be present for a contract to be enforceable. An enforceable contract refers to a legally binding agreement between two or more parties. Except under certain situations, a contract does not necessarily be in writing in order to become legally binding. However, oral contracts are somewhat difficult to prove.

To be legally binding, an “enforceable contract” must have an offer to enter into the agreement, the acceptance of that offer, valid consideration, and no deterrents to enforce such an agreement. Consideration is usually the exchange of money for a promise to do or not to do something between the parties. Moreover, some common deterrents to enforcing a contract are lack of capacity, undue influence, duress, non-disclosure, misrepresentation, illegality, breach of public policy, impossibility, etc. If any of these are present, an otherwise valid contract shall become unenforceable.

Things that make contracts unenforceable

Given below are some common causes that make contracts unenforceable under the law:

Lack of capacity to contract

All parties to an agreement should be legally capable of entering into such an agreement. If they are under the age of eighteen, are mentally impaired, have behavioural or physical abnormalities due to dependence on drugs/alcohol, or do not otherwise fully understand what they are agreeing to do, they are said to lack capacity. If any of the parties cannot contract due to lack of capacity, a contract cannot be enforceable.

Undue influence or duress

During the negotiation of a contract, if one party takes unfair advantage of the other or creates undue pressure to force the other party to enter into the agreement, the contract cannot be enforced. Here the pressure must be extreme so that the contract can be considered unenforceable because of undue influence/duress. To take an example, suppose if one party gives a threat of violence to enable the other party to sign an agreement, the contract cannot be enforced.

Non-disclosure or misrepresentation

Persons who use deception to persuade someone to enter into an agreement are not looked upon positively by Courts. A contract may be regarded as unenforceable if one party gets the agreement of the other party by providing false or misleading claims or omitting key information during negotiations to enter into the agreement.

Illegality or Breach of public policy

Contracts that agree to something that is illegal or not in the best interests of the public will not be enforced by the Courts. For example, a Court will not enforce a purchase agreement for illegal substances. Courts will also not enforce a landlord-tenant agreement that requires a tenant to agree to live in conditions that violate health and safety standards. The goal of public policy and non-enforcement grounds is to safeguard society as a whole.

Impossibility

Sometimes a contract that was legitimate when it was formed becomes impossible to carry out and, as a result, becomes unenforceable. In most cases, an impossibility caused by one party’s fault does not render a contract unenforceable.

Moreover, an impossibility that arises after the contract is made is referred to as supervening impossibility. If the contract was capable of fulfillment at the time it was made, but later its performance becomes impossible or unlawful due to an event over which neither party has control, the contract becomes void and the parties are released from their duties.

For instance, A agrees to sell 100 kgs of rice to B for $10,000. However, there was a massive flood in the states, destroying all of the rice fields. This contract is now null and void and cannot be enforced against any party.

Unconscionability

When something about a contract’s terms or how it was made is so unjust that enforcing it will “shock the conscience”, it is called unconscionable. A contract is not unconscionable simply because one party possessed greater bargaining power. Employment contracts, for example, are frequently held to be enforceable, despite the fact that the employer has more authority to shape the terms of the agreement. Contracts have been deemed unconscionable in cases where a competent firm is unfair to a barely literate, ignorant consumer.

Depending on the circumstances, a court may conclude that the entire agreement is unenforceable, or it may strike the sections of the agreement that it deems unconscionable and execute the remainder of the contract.

Mistakes

Not all mistakes render a contract unenforceable, but some do. Mistakes can be “unilateral” when only one party makes a mistake about the contract or “mutual” when both parties make a mistake about the contract. Contracts are more likely to be deemed unenforceable when the mistake is mutual, although even a unilateral fault might also serve as a basis for the non-enforceability of a contract. Only mistakes that are material to the agreement and have a significant impact on its development or performance can render a contract unenforceable.

Relevant case law

In the case of Couturier v Hastie (1856), the parties were the seller and buyer of a shipment of grain (corn) transported from the Mediterranean to England. Before the parties entered into the contract for sale, the shipment of corn perished and was disposed of without the parties’ knowledge. When the parties came to know their mistake, the issue of legality emerges.

The House of Lords of the United Kingdom ruled that the contract was illegal from the outset since both parties made the same mistake and lacked the physical ability to perform the contract. As a result, the contract is unenforceable because there was no corn to be contracted.

Conclusion

If a contract is found to be unenforceable, the Court will not compel one party to act or compensate the other for failing to comply with the contract’s provisions. A contract can be declared unenforceable for a variety of reasons, including the factors underlying its signing, the terms of the agreement, or events that occur after it has been signed.

List of references:

1. Couturier v Hastie (1856) 5 H.L. Cas. 673

2. “THE HARMFUL EFFECTS OF UNENFORCEABLE CONTRACT TERMS: EXPERIMENTAL EVIDENCE”. Hnmcp.Law.Harvard.Edu, 2022, http://hnmcp.law.harvard.edu/wp-content/uploads/2019/08/Fisher-Sander-2019-Winner-Furth-Matzkin.pdf.

3. “On The Knowing Inclusion Of Unenforceable Contract And Lease Terms”. Core.Ac.Uk, 2022, https://core.ac.uk/download/pdf/228595768.pdf.

4. “What Is An Unenforceable Contract?”. Kirasystems.Com, 2022, https://kirasystems.com/learn/what-is-an-unenforceable-contract/.


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Ruchi Gandhi

The author enjoys to write informational content in the domain of company law and allied laws. She takes interest in doing thorough and analytical research on legal topics. She is a CA along with MBA (Fin) and M. Com.

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