When entering into some form of a coalition, partnership or possible business transactions, most parties would draw up a contract to outline the guidelines of the agreement. As well, contracts are useful in expressly annotating each party’s expectations as well as limitations in obvious terms regarding the deal in question. A contract is a legally binding document, and breaking said agreement can result in acute repercussions for the culpable party. However, there are circumstances where a contract is unenforceable in the eyes of the Courts.
Circumstances under which the contract in question is not legally binding or enforceable:
- LACK OF CAPACITY – This defense occurs when a party is either too young or lacks the capacity to understand the contract they signed into. Children or persons with some form of mental disease or defect generally are thought to lack the capacity to understand the terms of a contract.
- DURESS – If someone threatens or coerces an individual into entering a contract, that contract is unenforceable. This scenario could arise, for example, when one party refuses to continue the work or deliver the requested goods unless the other party drafts a new contract for a higher monetary compensation.
- UNCONSCIONABILITY – Contracts or terms that are “unconscionable” – shock the conscience – are unenforceable. If the terms of the contract are exceedingly unfair or oppressive that they shock the conscience, they will void the entire contract. However, the Courts may uphold portions that are reasonable and allow them to remain valid while only voiding the unconscionable portions.
- AMBIGUITY – There is no legal enforcement of an agreement if the parties use a key term within the contract that can be open to at least two interpretations. If each party gives a different meaning to that term, or neither party knew or had reason to know it was open to at least two interpretations, the terms are too ambiguous and subsequently thrown out.
- UNDUE INFLUENCE – If one party is to have more influence over the other, whether by manipulation, exploitation of a particular weakness or relationship – this may be considered grounds to illegitimate the agreement.
- IMPOSSIBILITY – If the terms of the contract are unable to be accomplished because of some unexpected event at no fault of the party’s, the contract may become void.
- MISTAKE – If a mistake is made by one or both parties, and that mistake is essential to the contract terms, it may be deemed unenforceable.
- PUBLIC POLICY – If any harm from the contract can directly affect the public at large, it may be deemed unenforceable.
An unjust enrichment cause of action does not require a contract. A breach of contract cause of action, however, does require a contract. Unjust enrichment occurs when one party is unfairly enriched at the expense of another. There are four elements that need to be proven to prevail in an unjust enrichment cause of action;
1) a party conferring benefits on another
2) the party receiving the benefits benefited
3) the benefits are inequitable
4) there is no adequate remedy at law
There are two types of contractual fraud. Fraud in the inducement occurs when a party is deceived into signing the contract. Fraud in the factum is where fraud exists as to a certain fact or description in the contract. In either case, monetary compensation is available to make a party whole again.
A defense to contract fraud is “unclean hands.” If the disputing party has engaged in similar fraud, he or she cannot have a viable cause of action.
The attorneys at Dunlap Bennett & Ludwig are experienced business lawyers who have handled all aspects contract litigation. They maintain locations across the country and will provide you with sound representation based upon years of experience. Your case will be handled with discrete, careful representation designed to protect your company and its interests. If you have encountered a contractual issue, call our team at (866) 755-8745. To read more on breaking unenforcable contracts, click here.