How to Know Whether Your Contract is Enforceable Under the Law

How to Know Whether Your Contract is Enforceable Under the Law

Everyone involved in a business agreement expects that it will be enforceable. However, things happen during the course of business that can complicate adhering to the terms. When things go south, you may wonder what your options are. As a non-breaching party, you want to ensure that your rights are protected. Yet, you can only assert your rights if the contract was enforceable from the start. Generally, this begins with proper contract preparation to make sure that the promises are legally binding.

The Initial Consideration

The first thing that you need to look at is whether your agreement is really a contract. Certain elements must be satisfied to give the agreement a legal effect. First, you need a valid offer and acceptance. There also must be an exchange of promises where each party gets something in return. Finally, a contract needs to have specific terms that can be interpreted and enforced by a court.

After a Contract is Made

Once business contracts are determined to be valid, one still has to determine whether they can be enforced. Even if the contract preparation was up to par, it is possible for a party to legally breach the contract under a defense. If one of the parties can prove that a legal defense applies, the contract may be voided by the court. This would release the party's obligation to perform. This is something all business owners need to be aware of when entering in to agreements.

A Look at Defenses

There are a few different defenses that can arise during the life of a contract. The defense of mistake refers to a misunderstanding about a basic facet of the contract. In order for the mistake to be legally sufficient, it must concern a material aspect of the agreement. It must also be related to the facts in existence at the time the contract was created. Furthermore, neither of the parties can have assumed the risk that an error would be made. Nonetheless, it is important to understand that a mistake is not a lack of familiarity with the terms due to not reading the document.

Another popular defense is unconscionability. This is a more complicated defense that analyzes the overall fairness of the deal. A court will look at several different factors to determine whether the contract "shocks the conscience." For example, in contracts where there is a huge difference in bargaining power, the court may find it unconscionable to enforce the contract.

One of the more well known contract issues is known as a lack of capacity. Those who are underage or mentally impaired do not have the right to enter into a contract. The laws deems these people incapable of understanding the obligations that may be undertaken. Therefore, the lack of capacity is a ground to void a contract.

Preparing for the Future

If you understand how contracts can go wrong, it can help you prepare more solid agreements for the future. The defenses listed above are not the only ones that can arise. You may also have to deal with claims of duress or larger public policy considerations. In any case, it is best to refer contract litigation matters to an experienced attorney to protect your business.

In Utah, contact Spencer and Jensen PLLC for assistance with contract preparation or contract litigation.

Tags: business contract, contracts, litigation

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