8 Ways Good Contracts Can Become Legally Unenforceable
Just about everybody recognizes that contracts – as a general rule – are a good thing to have when entering into a business agreement.
It allows both parties to organize their thoughts, and structure a business deal that works for everyone…especially in the event something goes wrong. But what most people don’t know is that some contracts are better than others.
In other words, just because you have a contract doesn’t necessarily mean that it’s enforceable. And since enforceability is a key factor regarding the contract in general (why have something that you can’t actually enforce?), I’m going to list a few common situations where contracts are legally unenforceable.
Lack of capacity – if one of the parties lacks the ability to understand what they are agreeing to, which could be for several reasons, including mental incapacity, age (too young) or not understanding the language, a contract could be deemed unenforceable.
Coercion – a contract may be invalid if it was entered into under duress, meaning that someone was threatened into agreeing to the terms.
Fraud – if there was any misrepresentation during the contract negotiations, the contract could be found to be unenforceable.
Nondisclosure – if one party to a contract makes a misrepresentation by staying silent about important details.
Unconscionability – if something within the contract is grossly unfair – one side has much greater bargaining power or is illiterate and cannot understand the terms – this can render a contract invalid.
Breach of public policy – contracts that require one party to act illegally or force one party to forfeit employment or other rights cannot be legally enforceable.
Mistakes – if one or both parties commit an unintentional mistake regarding something important in the contract that has a significant effect on the negotiating process, the contract can be unenforceable.
Impossibility – sometimes a contract can be found to be unenforceable if it becomes impossible to fulfill the terms due to an unanticipated event or circumstance.
Again, having proper contracts in place prior to entering a business agreement is smart and generally speaking, a good idea. But just make sure you have a good lawyer put it together so you don’t make these mistakes and unwittingly create a legally unenforceable document!