Businesses utilize contracts throughout their day-to-day operations, as well as in their formative and operational processes. This may include contracts to purchase and pay for goods, as well as to hire contractors or workers to perform certain tasks. When one or both sides do not adhere to the provisions and their obligations as outlined in these contracts, disputes may arise that could threaten companies’ success, growth and longevity.
Understanding the circumstances that may make contracts unenforceable may help business owners and operators to ensure they establish valid business agreements.
Performing illegal or immoral acts
According to state law, the court may invalidate a contract if it serves to hire someone to perform an act deemed immoral or illegal. In the case of severable contracts, the court may uphold the legal portions and invalidate the illegal portions. Thus, for instance, the parties may have to fulfill those enforceable provisions in their contracts, while the court may forgive them for not carrying out the portions that break the law.
Going against the policy of the law
According to state law, the court may also limit the enforcement of business agreements that go against the policy of the law. This may include those that restrict competitive activities, establish wagers or tend to corrupt legislation. For example, then, the court may declare invalid contracts which specify that one party should pay money to a second in the event of a future, uncertain event occurring. As such, those involved in the contract may have grounds not to complete their obligations under the contract without facing the potential consequences.