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How To Determine Whether A Contract Is Enforceable

On Behalf of | Apr 18, 2024 | Business Law

Contracts regulate all kinds of relationships. Companies execute contracts with employees and independent contractors hired to work for the business. Organizations sign contracts to secure facilities in which to operate and to arrange for material delivery from vendors.

Unfortunately, even when companies invest in contracts to ensure the smooth continuation of operations, other parties may not uphold their contractual obligations. It may then become necessary to take the matter to court. A lawsuit related to a contract breach often involves a judicial review of the contract itself. By answering the following questions, a party affected by a contract breach can work to determine whether the courts may enforce their contract.

Is the contract legally appropriate?

One of the first factors to consider is whether or not the contract complies with all federal and state laws. A contract requiring that someone do something illegal is likely unenforceable. Similarly, state statutes restrict the use of certain types of clauses in certain contracts. It is therefore crucial to review the language included in a contract, especially if a party used boilerplate documents that may not include appropriate state-specific language.

Is the contract unconscionable?

Another of the common reasons that a contract becomes unenforceable is that the courts deem it unconscionable. A contract should generally include provisions that offer benefits and protections to both parties. Contracts need to contain a valid offer by one party and the acceptance of the other party. A contract that solely benefits one party is likely an unconscionable agreement that the courts may not enforce during litigation.

Did the parties sign voluntarily?

The courts may also consider the circumstances of a contract’s execution. Both parties generally need to have the necessary legal capacity to enter into a binding agreement. If they act on behalf of a business, they must have the rightful authority to do so. Beyond that, there should be an absence of coercion or duress. The parties should both have an opportunity to consider the offer, possibly with the assistance of their own lawyers. A contract that doesn’t meet these basic standards may not be enforceable even if one party initiates a lawsuit.

Learning more about what makes a contract enforceable and valid can help those attempting to address a contract dispute to make informed decisions. Those who carefully review a contract can determine if taking legal action is appropriate in their case.