Once you execute a business contract, you naturally expect the other party to live up to the terms of that contract. If they fail to do so, you may then turn to the courts for a remedy. However, in some situations, a court may find a contract unenforceable if any of the following conditions were present at the time the contract was executed:
The other party lacked capacity.
If the other party to your contract does not have the capacity to understand what they have agreed to — because of a language barrier, age (under 18), intoxication, or lack of mental capacity — the contract can be found to be unenforceable in a court of law.
One of the parties was coerced.
If someone is under threat to agree to the terms of a contract, this is coercion and a contract signed under duress may be invalid. Typically, courts will weigh the extremity of the coercion to determine the enforceability of the contract; the pressure used must be extreme to find a contract unenforceable.
If there was any misrepresentation during contract negotiations — in the form of misleading or false statements — a contract may be nullified.
If one of the parties is silent about important details regarding the contract, it could be found unenforceable if a court decides that the party had a duty to disclose important material facts.
A contract may be found invalid if any part of that contract is grossly unfair to one of the parties so as to “shock the judicial conscience” if it was enforced. If one party has more bargaining power, this fact alone does not generally give rise to unconscionability — for example, in executing employment contracts, employers usually have more power to determine the terms of the contract.
Breach of public policy.
A contract is not legally enforceable if it requires one party to engage in illegal acts, forfeit any of their legal rights, or act in any way that may pose harm to society in general.
If both parties enter into a contract based upon an assumption that later proves to be incorrect, the contract may in some cases be rescinded – restoring the parties to their pre-contract position. Not all mistakes will nullify a contract; they must be important to the agreement and have a significant impact on the creation or performance of the contract.
If it is impossible or impractical for one of the parties to fulfill the terms of a contract due to unforeseen circumstances — an illness or a major disaster — the contract may be ruled unenforceable.