Businesspeople have a common belief that after entering into a contract, there are no exceptions to its enforcement and are otherwise free from issues. ‘Contract’ is a written way to solidify an agreement among two parties in relation to business activity or any activity for that matter. A valid agreement exists, provided that the listed elements are suitably met. The fact of the matter is that not all contracts are valid. There may be a situation where the elements are absent – thus making it unenforceable or otherwise, not fully enforceable.
There may also arise a situation wherein the terms of the contract are against public policy. In such cases, the contract ‘even though it meets all elements’ is void. However, there are a number of differences between a contract that is ‘invalid’ and one that is ‘void’.
Elements of a Valid Contract
There are 3 elements of a contract that are essential for it to be enforceable. These are:
- 1. Offer – A promise to execute an action
- 2. Acceptance – Acknowledgement of the offer and accepting to perform it
- 3. Consideration – Something of material value that is agreed upon by both parties in return for performing the action
Without the presence of even one of these elements, a contract cannot be valid.
There are several situations where a contract becomes invalid or unenforceable. Invalid Contractsthose that do not contain any one of the three elements, do not satisfy the terms or are illegal.
Contracts may become invalid under the following circumstances:
- If the contract is against public policy
- If the contract is illegal
- If the offer/acceptance/consideration calls for action that violates the law – such as gambling, robbery, etc.
- If the purpose of the contract is illegal
Contracts may be deemed unenforceable due to a variety of reasons. Sometimes, the contract is not legal but against public policy. For example, a clause in an employment contract to not compete in the organization is against public policy. Employers may do this to ensure that employees due not leave the organization. However, this restricts the right of free employment for an individual.
Breach of contract cannot be charged if the contract, itself, is invalid. In such cases, the suing party is not awarded any damages as the contract is considered unenforceable.
The Contract Law
According to United States Code, Section 10: “All agreements are contracts if they are made by the free consent of the parties competent to contract, for a lawful consideration and with a lawful object, and are not hereby expressly declared to be void”
This means that for a contract to be valid, the following terms must be fulfilled:
- 1. The agreement must not be declared void
- 2. Creating a legal relationship must be the intent
- 3. It must be a lawful object
- 4. The offer, acceptance and consideration must be proper
- 5. The meaning must be clearly defined
- 6. Free consent of both parties
- 7. The parties must be in a capacity to form a contract
- 8. The consideration must be lawful
- 9. It must be done through legal formalities
- 10.The performance of contract must be possible
To make sure you have a valid contract, you should discuss the particulars of your contract with an experienced attorney who will represent your legal interests. As oftentimes there is a lot of ambiguity innate in the law and the written words of a contract, a lawyer can facilitate that your legal rights are enforced.