What Makes a Contract Unenforceable?

Published on July 10, 2024

Understanding what makes a contract unenforceable is  crucial for anyone entering an agreement. Among other things,  A contract can become unenforceable when it lacks mutual consent, involves illegal activities, or when a party lacks the capacity to understand the terms. Contracts may also become unenforceable due to mistakes, coercion, or when fulfilling the agreement becomes impossible.

When one party is unfairly taken advantage of, or if a contract’s subject matter is deemed not in the best interest of society, it might not be upheld in court. For instance, contracts for child custody in California must align with the child’s best interests, or they will be considered invalid. In other scenarios, such as when a unilateral or mutual mistake occurs, the agreement may fail to hold its ground.

Unenforceable contracts extend beyond mere disagreements between parties. Situations involving coercion or deception during negotiations, or when one party cannot understand or commit to the contract terms due to age or mental capacity, underline the importance of ensuring clarity and fairness in contractual obligations. Contracts can even become unenforceable if fulfilling them becomes illegal, highlighting the dynamic nature of enforceable agreements.

Legal Requirements for Contract Enforceability

To ensure a contract is enforceable, it must meet several specific legal criteria. Each criterion plays an essential role in forming a binding agreement.

Offer and Acceptance
A valid contract begins with a clear offer by one party and acceptance by another. Both offer and acceptance must be unequivocal.

Intention to Create Legal Relations
Parties involved must intend to form a legally binding agreement. This intent is typically clear in business transactions but may be scrutinized in social or domestic contexts.

Consideration
Consideration refers to something of value exchanged between parties, which can be monetary, a service, or an act. Without consideration, the contract lacks validity.

Capacity
Legally, parties must have the capacity to enter into a contract. This means they must be of legal age and have sound mind. Contracts involving minors or individuals deemed incapable are usually not enforceable.

Legality
The contract’s terms and purpose must comply with the law. Agreements involving illegal activities are void and unenforceable.

Mutual Assent
Also known as “meeting of the minds,” mutual assent requires all parties to agree and understand the contract’s terms clearly. This includes agreeing on all essential details.

An enforceable contract embodies all these elements, ensuring that the agreement is legally valid and binding. Missing any of these essential components can render a contract unenforceable. For further details, contact our law firm. We’re happy to help.

Common Factors That Render Contracts Unenforceable

Contracts can become unenforceable due to various legal reasons, from lack of capacity to undue influence, duress, and misrepresentation.

Lack of Capacity

A contract requires all parties to have the legal capacity to enter into an agreement. Legal capacity means that an individual or entity fully understands the terms and consequences of the contract.

Minors, individuals with mental incapacitations, and intoxicated persons typically lack this capacity.

For instance, under Texas business laws, a contract signed by a minor can be voided by the minor. This principle aims to protect individuals who are seen as unable to comprehend the depth of the agreements they enter into. Courts will generally not enforce contracts against parties found to lack the capacity at the time of agreement.

Undue Influence, Duress, and Misrepresentation

Undue influence involves one party taking advantage of their power over another party, which results in an unfair contract.

Duress consists of threats or coercion used to force someone into a contract. For a contract to be enforceable, the agreement must be made voluntarily, without pressure.

Misrepresentation involves providing false or misleading information to persuade someone to enter a contract. In Texas, if a party can prove misrepresentation, the contract could be rendered unenforceable.

To avoid issues of undue influence, duress, and misrepresentation, it is vital to ensure that all parties willingly sign the contract with a clear and accurate understanding of the terms involved.

The Role of Consideration in Contract Validity

Consideration is a fundamental element in determining the validity and enforceability of a contract.

At its core, consideration represents the value exchanged between parties involved in a contract. This value can be anything of legal benefit to the one party or a detriment to the other.

There are two primary types of consideration: executory and executed. Executory consideration refers to a promise to perform an act in the future. In contrast, executed consideration entails the actual performance of an act. Both types are critical in forming a legally binding contract.

For a contract to be enforceable, the consideration must be sufficient and lawful. Sufficiency means that the consideration must be something of value in the eyes of the law, even if it is of minimal value. Lawfulness ensures that the consideration is not illegal or against public policy.

Notably, consideration does not necessarily have to be monetary. It can include various forms, such as services, goods, or a pledge to refrain from a specific action.

An important aspect of consideration is that it requires a mutual exchange. Both parties must provide and receive something of value. This exchange solidifies the commitment of each party to the terms of the contract, making it legally binding.

In business settings, the role of consideration is crucial. It validates the contract and provides the foundation for the agreement, ensuring that both parties have a stake in fulfilling their contractual obligations.

Understanding the role of consideration helps parties ensure that their contracts are valid and enforceable. 

Statute of Frauds and Contractual Formalities

The Statute of Frauds mandates that specific types of contracts must be in writing to be enforceable. This legal concept aims to prevent fraudulent claims and misunderstandings by ensuring both parties have a clear record of their agreement.

Contracts That Must Be in Writing

• Land Sale Agreements: Any contract for the sale of land or real estate.
• Warranties: Agreements outlining product or service guarantees.
• Marriage Settlements: Contracts involving marriage considerations.
• Contracts Not Performable Within a Year: Agreements extending beyond one year require written documentation.

Purpose

The primary goal of the Statute of Frauds is to promote transparency and prevent fraud in business dealings. This ensures that all involved parties fully understand their rights and obligations.

Exceptions

Some exceptions exist where oral agreements may still be enforceable:

• Part performance
• Admission in court
• Specialty manufactured goods

Legal Implications

Non-compliance with the Statute of Frauds can render a contract unenforceable, exposing parties to risks and liabilities. It’s essential for businesses and individuals to stay informed about these requirements to avoid potential legal pitfalls.

Remedies and Dispute Resolution

When a contract dispute arises, parties have various avenues to resolve their issues. These options range from alternative dispute resolution methods to formal litigation processes.

Alternative Dispute Resolution

Alternative dispute resolution (ADR) encompasses mediation and arbitration. These methods are typically less formal and less costly than litigation. Mediation involves a neutral third party who facilitates negotiation and agreement between the parties. Arbitration, on the other hand, has an arbitrator who makes binding decisions after considering both sides.

ADR is often preferred for its speed and confidentiality. It can help maintain business relationships by avoiding the adversarial nature of court battles. Wade McClure at Mayer, LLP notes that many contracts include clauses mandating ADR before litigation can be pursued, ensuring an attempt at amicable resolution. Typically business parties are represented by legal counsel during a mediation or an arbitration.  Wade McClure at Mayer, LLP has successfully handled many mediations and arbitrations.  The importance of having an experienced legal team to navigate the intricacies of contract law and court procedures cannot be over emphasized. 

Litigation 

When ADR fails or is unsuitable, litigation becomes necessary. Litigation involves filing a lawsuit in court, where legal representation is crucial. Lawyers will present evidence, examine witnesses, and argue the case to a judge or jury. This process can be lengthy and expensive but might be essential for complex or high-stakes disputes.

Legal remedies available through litigation include damages, specific performance, and injunctions. Courts can also enforce or void contracts based on partial performance or other factual findings. Wade McClure at Mayer, LLP emphasizes the importance of having an experienced legal team to navigate the intricacies of contract law and court procedures.

When a party fails to abide by a contract, a lawyer can take several steps to seek remedy. Initially, they may send a demand letter outlining the breach and requesting compliance or compensation. If this does not resolve the issue, the lawyer can file a lawsuit for breach of contract, seeking damages or specific performance. They may also explore alternative dispute resolution methods, such as mediation or arbitration, to settle the matter out of court.

To prove a contract is unenforceable, a lawyer will scrutinize the agreement for legal deficiencies. They might argue that the contract lacks essential elements, such as mutual consent, consideration, or lawful purpose. Additionally, they could present evidence of factors like fraud, duress, undue influence, or a party’s incapacity at the time of signing. If successful, the court may declare the contract void or voidable, relieving the client of their obligations under the agreement.