Tuesday, 31 May 2022

Unenforceable Contracts

 Unenforceable Contracts


Unenforceable contracts are those contracts which are valid contracts but because of some technical defects are rendered unenforceable by law. For a contract to be deemed enforceable, certain conditions need to be met:

Offer:

An offer is a promise to do or abstain from doing something. It must be stated in such a manner that it would lead the individual receiving it to expect a contract arising from its acceptance.  

Acceptance:

When both the parties accept the terms by mutual assent. 

Consideration:

An exchange of something of value in exchange for contractual promises. 


In case of an unenforceable contract, the court will not compel a party to act or compensate the other for not fulfilling the contract terms. A contract my be deemed unenforceable for various reasons. There are certain cases, in which some special requirements need to be met in oder to constitute a contract such as the contract must be attested or registered. If by either party, such formalities are not properly completed, that would also render the contract unenforceable by law. 


Some instances which may render a contract unenforceable are:

Lack of capacity: Sec. 10 of the Indian Contract Act,1872 requires that the parties must be competent to contract and Sec. 11 further defines who are competent to contract, “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.” Thus, minors, persons of unsound mind and persons disqualified by law are incompetent to contract. 


Undue Influence: One of the essential of a valid contract is that it should be made at free will of the parties but undue influence goes against this principle. According to Sec 16 (1) where the relation subsisting between the parties are such that one of the parties is in a position to dominate the will of the other, and uses that position to obtain an unfair advantage over the other, there is said to be undue influence. 

Example: A person may be compelled to make a will unwillingly in favour of the party exercising undue influence.


Misrepresentation: When one party intentionally (fraudulently) or unintentionally (negligently) makes a false statement with the intent to compel the other party to sign the contract, it is called misrepresentation.

In Smith v Land & House Property Corp, the complainant advertised his hotel for sale, claiming that it had been leased to a "most desirable tenant." The defendants reached an agreement to purchase the hotel. The tenant was unable to pay his rent since he was insolvent. As a result, the defendants refused to fulfil their obligations under the contract, and the plaintiff sued them for specific performance. According to the Court of Appeal, the plaintiff's declaration was not an opinion, but a fact.


Public Policy: Contracts which may cause injury to society are deemed to be unenforceable. Contracts that contain provisions that are in violation of state or federal law are inherently void. Example: a company may deny an employee to take maternity leave, it goes against the public policy and hence is unenforceable.


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