Contract Law: An In-Depth Examination

Two people sign a contract
  • James Notaris

    CPA, ESQ. Legal Editor

  • Steve Longo

    Executive Editor

    In Brief:

  • Contract law plays a crucial role in the broader legal framework of the United States.

  • A number of issues can make a contract unenforceable by a court of law.

  • Take a closer look at contract law, including some contract law examples, below!

Contract law is crucial, but sometimes confusing, for the average layman who has a limited understanding of how the legal process works. While contracts may seem simple at face value, the truth is that contract law, surprisingly, is a lot more complex than just two parties signing on a dotted line!

 

We break down the details of contract law in this in-depth examination to help you better understand its intricacies and nuances more clearly.

Does a Contract Need to Be in Writing to Be Enforceable?

Not necessarily. 

 

In most situations, contracts can be either written or oral and still be enforceable from a legal standpoint, though some agreements need to be in writing in order to be binding. Many state laws, for example, often require that any real estate transactions or agreements that last more than one year be in writing. 

 

The basis for written contracts can be traced to the “Statute of Frauds,” a law from England that dates back to 1677. The goal of the law was to avoid cases of fraud by requiring written proof of an agreement. Today, all states in the U.S. aside from South Carolina and New York have adopted a Uniform Commercial code that includes a statute of frauds. 

 

Oral contracts are often very difficult to enforce legally, as there’s no written record of their offer, consideration, or acceptance. Generally, it’s best to get a contract completed in writing in order to ensure its enforceability and legal validity. 

After Two People Create a Contract, Is It Always Enforceable?

A number of issues can make a contract unenforceable. A few of these include the following:

Lack of Capacity

A lack of capacity, or the mental ability to understand what’s in a contract, can be one reason a contract is deemed unenforceable. If a contract is created where one party lacks capacity, they can likely get out of the agreement without any penalty. 

 

Generally, there are three main types of lack of capacity in contract law. Minors, those under the legal age of consent, are eligible to get out of contracts, as are people who lack competency to understand contracts, such as those with low IQs, mental disabilities, or conditions like dementia. Being under the influence is the last one, which is for people who are typically competent, but may be under the influence of drugs or alcohol when signing a contract.

Fraud and Misrepresentation

Fraud is a willful act that aims to deprive a person of their right or to inflict injury on them. In terms of contract law, fraud relates to deception about a key component of the contract, and includes both lying and not telling the entire truth about something. 

 

Misrepresentation, on the other hand, is a false statement that compels a party to enter into a contract. The injury party needs to prove that they relied on this false statement when entering into the contract, ultimately leading to a loss for them.

Undue Influence and Duress

Undue influence and duress are also reasons a contract may be deemed unenforceable. 

 

Undue influence is defined as influence from one party to another considered to be of unequal stature, such as a boss pressuring a low-level employee to sign a contract that benefits them. Duress is the coercion to sign a contract using threats and even violence.

Unwritten Contracts

Though not every type of contract has to be in writing, some types, such as real estate transactions, must be written to be considered valid and enforceable.

Illegality

A contract that willfully breaks the law can also be deemed unenforceable. For example, an agreement in which one party sells alcohol to minors is against the law, and therefore not legally enforceable.

Lacking Required Elements

 

Finally, a contract may be voided if it lacks the required elements that comprise a legal contract, specifically an offer, acceptance, legal subject matter of what’s being agreed to, capacity, and consideration. 

Contract law basics

If a Contract is Unfair, Can a Court Refuse to Enforce It?

Yes, a contract deemed to be unfair may be voided in a court of law. 


A court may deem a contract unfair and refuse to enforce it for the above reasons, as well as for the following reasons:

Unconscionability

This occurs when the contract is deemed by the court to be so unfair and unequal between the parties that it’s ultimately considered to be unconscionable. 

Mistakes

To cancel a contract because of a mistake, both parties must have made an error on the basic assumptions of the contract, the mistake must have an impact on the agreed exchange, and must relate to all of the known facts when the contract was initially created. The party seeking to void the contract must not have assumed the risk of a mistake and its impact on the contract. 

Nondisclosure

Nondisclosure essentially means misrepresentation by not disclosing certain facts about the agreement. 

Force Majeure

Most business contracts include a force majeure clause, which cancels it if certain circumstances beyond the control of all parties involved occur. Common examples include natural disasters, fires, pandemics, acts of terrorism, and civil disobedience. 

Public Policy

Similar to illegality, this means that the contract can be deemed unenforceable if it harms society as a whole in any way. An example of this would be if an employer forces an employee to sign a contract that forbids any medical or parental leave. 

Impossibility

A contract can also be found unenforceable if it’s deemed impossible for one party to carry out their end of the bargain. To have a contract voided due to this, one party involved would have to make the case that they can’t fulfill their obligations due to unexpected events beyond their control and that performing their obligations in the contract would be too expensive or difficult. 

After You Make a Contract, Can You Ever Get Out of It?

As contracts are legally-binding agreements, one party simply can’t get out of them just because they decide to change their mind. Breaching a contract can have legal consequences, though there are still valid, legal ways to get out of a contract. 

 

In addition to all of these reasons above, a party can get out of a contract if it contains a provision that it can be ended by prior agreement, that is, the written notification that it can be terminated by written notice. Breach of contract by the other party is another way a person or business can get out of a binding legal agreement, while some states have rescission periods that allow a party to rescind their agreement to the contract if they change their mind. Some contracts may also have rescission clauses written into them that also allow parties to rescind their agreement for a designated period after the contract is signed.

What Happens If One Party Doesn’t Meet Expectations in a Performance-Based Contract?

If a party fails to meet expectations in a performance-based contract, a number of outcomes can occur. 

One outcome is that the contract may be found in breach and ultimately terminated. A breach can be either a material breach, totally broken in its obligations by a party, or an immaterial breach, a more trivial breach that doesn’t directly impact the major terms of the contract. The injury party harmed by the nonperformance has a right to sue for damages in a court of law in this instance. 

 

However, not all nonperformance breaches result in the termination of contracts. The parties may instead mutually agree to change the terms of the contract as a workaround for performance issues in a legal agreement. 

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