Will
Your
Contract
Be
Enforced
Under
the
Law?
If
you
are
involved
in a
business
agreement,
one
of
the
first
things
to
determine
is
whether
the
promise
or
agreement
at
issue
will
be
considered
an
enforceable
contract
under
the
law.
While
contracts
usually
involve
promises
to
do
something
(or
refrain
from
doing
something),
not
all
promises
are
contracts.
How
does
the
law
determine
which
promises
are
enforceable
contracts
and
which
are
not?
Is
the
Agreement
a
Contract?
Courts
look
at a
number
of
factors
to
determine
whether
an
agreement
should
be
enforced.
The
court
must
initially
determine
whether
the
agreement
constitutes
a
contract
or
not.
In
order
for
an
agreement
to
be
considered
a
valid
contract,
it
must
satisfy
certain
requirements.
One
party
must
make
an
offer
and
the
other
party
must
accept
it.
There
must
be a
bargained
for
exchange
of
promises,
meaning
that
something
of
value
must
be
given
in
return
for
a
promise.
In
addition,
the
terms
of a
contract
must
be
sufficiently
definite
for
a
court
to
enforce
them.
Enforcement
and
Contract
Defenses
If a
court
determines
that
a
contract
exists,
it
next
must
decide
whether
that
contract
should
be
enforced.
There
are
a
number
of
reasons
why
a
court
might
not
enforce
a
contract.
These
are
called
defenses
to
the
contract.
Contract
defenses
are
designed
to
protect
people
from
unfairness
in
the
bargaining
process,
or
in
the
substance
of
the
contract
itself.
If
there
is a
valid
defense
to a
contract,
the
contract
may
be
void
able,
meaning
the
party
to
the
contract
who
was
the
victim
of
the
unfairness
may
be
able
to
cancel
or
revoke
the
contract.
In
some
instances,
the
unfairness
is
so
extreme
that
the
contract
is
considered
void,
in
other
words,
a
court
will
declare
that
no
contract
was
ever
formed.
What
are
some
of
the
reasons
a
court
might
refuse
to
enforce
a
contract?
Contract Defenses: Capacity to Contract
In order to be bound by a contract, a person must have the legal ability to form a contract in the first place. This legal ability is called capacity to contract. A person who is unable, due to age or mental impairment, to understand what she is doing when she signs a contract may lack capacity to contract. For example, a person under legal guardianship due to a mental defect completely lacks the capacity to contract. Any contract signed by that person is void. In other situations, a person may not completely lack the capacity to contract. The contract would then be void able at the option of the party claiming incapacity, if he or she is able to prove the incapacity
A minor generally cannot form an enforceable contract. A contract entered into by a minor may be canceled by the minor or by his or her guardian. After reaching the age of majority (18 in most states), a person still has a reasonable period of time to cancel a contract entered into as a minor. If, however, he or she does not cancel the contract within a reasonable period of time, the contract will be considered ratified, making it binding and enforceable.
If a person signs a contract while drunk or under the influence of drugs, can that contract be enforced? Courts are usually not very sympathetic to people who claim they were intoxicated when they signed a contract. Generally a court will only allow the contract to be avoided if the other party to the contract knew about the intoxication and took advantage of the intoxicated person, or if the person was somehow involuntarily intoxicated (e.g. someone spiked the punch).
Contract Defenses: Undue Influence, Duress, Misrepresentation
Coercion, threats, false statements, or improper persuasion by one party to a contract can void the contract. The defenses of duress, misrepresentation, and undue influence address these situations:
To claim the defense of duress, a party must show that assent or agreement to the contract was induced by a serious threat of unlawful or wrongful action, and that she had no reasonable alternative but to agree to the contract. Blackmail is an example of duress.
Undue influence is a type of improper persuasion that causes a person to enter an unfair transaction. Undue influence is often defined as unfair persuasion by a person who, because of his or her relation to the victim, is justifiably assumed by the victim to be one who will not act in a manner that is inconsistent with the victim's welfare.
The defense of misrepresentation focuses on dishonesty in bargaining. A misrepresentation may be: 1) a false statement of fact, 2) the deliberate withholding of information which a party has a duty to disclose, or 3) an action that conceals a fact (for example, painting over water damage when selling a house).
Contract Defenses: Unconscionability
The unconscionability defense is concerned with the fairness of both the process of contract formation and the substantive terms of the contract. When the terms of a contract are oppressive or when the bargaining process or resulting terms shock the conscience of the court, the court may strike down the contract as unconscionable.
The unconscionability defense applies to a wide variety of types of conduct, so a court will look at a number of factors in determining if a contract is unconscionable. If there is a gross inequality of bargaining power, so the weaker party to the contract has no meaningful choice as to the terms, and the resulting contract is unreasonably favorable to the stronger party, there may be a valid claim of unconscionability. A court will also look at whether one party is uneducated or illiterate, whether that party had the opportunity to ask questions or consult an attorney, and whether the price of the goods or services under the contract is excessive.
Contract Defenses: Public Policy and Illegality
Rather than protecting the parties to a contract as other contract defenses do, the defenses of illegality and violation of public policy seek to protect the public welfare and the integrity of the courts by refusing to enforce certain types of contracts. Contracts to engage in illegal or immoral conduct would not be enforced by the courts.
Contract Defenses: Mistake
A contract can be canceled on the grounds of mutual mistake of fact. In order to cancel a contract for mistake, both parties must have made a mistake as to a basic assumption on which the contract was based, and the mistake must have a material effect upon the agreed exchange. The mistake must relate to facts existing at the time the contract is made. In addition, the party seeking to avoid the contract must not have contractually assumed the risk of mistake. Parties sometimes attempt to claim mistake as a defense to a contract when they have failed to read the contract and later become aware of terms they dislike. Failure to read the contract is not a defense. A person who signs a contract is presumed to know what it says, and is bound to the terms she would have known about, had she read the contract.
Contract
Enforceability