What Is An Unenforceable Contract?

An unenforceable contract is a contract that, although valid in its formation, cannot be enforced by the courts due to certain legal obstacles. These obstacles typically involve issues like the statute of limitations, missing essential requirements, or conflicts with public policy. While unenforceable contracts may still be valid agreements between the parties, they cannot be upheld in a court of law if one party seeks to enforce the terms.

Characteristics of an Unenforceable Contract

Valid Agreement but Not Enforceable: The agreement may be legally valid, but due to a technical legal issue, such as the expiration of the statute of limitations or the lack of necessary formalities, the contract cannot be enforced.

Statute of Limitations: One of the most common reasons a contract becomes unenforceable is the statute of limitations. If a party seeks to enforce the contract after the statute of limitations period has expired, the courts will not hear the case.

Lack of Necessary Formalities: Some contracts require specific formalities to be enforceable, such as a written contract for the sale of real estate. If these formalities are not followed, the contract may be unenforceable, even though it was originally agreed upon.

Public Policy Issues: A contract that goes against public policy or is illegal under local laws may be unenforceable, even though it is not inherently void. For example, an agreement to perform an illegal act may be unenforceable in court.

Legal Implications of an Unenforceable Contract

Not Enforceable in Court: While the contract may remain valid between the parties, the courts will not enforce the terms. If one party breaches the contract, the other party cannot sue for damages or demand performance through the court.

Rights and Obligations: The parties to an unenforceable contract may still have mutual obligations under the agreement, but these obligations cannot be enforced through the judicial system. In certain cases, restitution may be required to restore parties to their original positions.

Breach of Contract: If a party to an unenforceable contract breaches the terms, the aggrieved party has no legal remedy, even though the breach might cause harm or financial loss.

Potential for Settlement: Since the contract is unenforceable in court, parties may resolve disputes through negotiation or other non-legal means, such as mediation or arbitration, to come to a mutual agreement.

Common Causes for a Contract to Be Unenforceable

Expiration of Statute of Limitations: In many jurisdictions, contracts are subject to a statute of limitations, which sets a time limit within which a party can enforce the contract. Once this period has passed, the contract becomes unenforceable.

Failure to Follow Required Formalities: Some types of contracts, like real estate agreements or contracts involving large sums of money, require specific formalities (such as being in writing) to be legally enforceable. If these formalities are not followed, the contract may become unenforceable.

Conflicting with Public Policy: Contracts that involve illegal activities or violate public policy (such as contracts for illegal gambling or trafficking) may be unenforceable, even if the contract itself was formed properly.

Minor or Incapacitated Parties: A contract made with a minor or a person who lacks the legal capacity to understand the agreement may be unenforceable, even though it may be valid in the eyes of the parties involved.

Example

Consider a situation where two parties enter into a contract for the sale of a rare collectible. The contract is valid, but the agreement was made after the statute of limitations for such sales has passed. As a result, if one party tries to enforce the terms of the contract in court, the contract is unenforceable because the legal time limit for initiating a lawsuit has expired.

Conclusion

An unenforceable contract is one that, although valid in form and agreement, cannot be legally enforced due to factors such as the expiration of the statute of limitations, failure to meet required formalities, or violation of public policy. While such contracts may still bind the parties to the terms and obligations of the agreement, they cannot be enforced in court, and no legal remedy can be sought for breaches. Understanding the elements that make a contract unenforceable helps in protecting one's rights and ensuring that contracts are legally sound and enforceable.