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 voidable, 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? 

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).