But what happens when a contract is unethically or inaccurately written? While a bad, or poorly written contract cannot provide a healthy framework for a business relationship, it also leaves the parties involved exposed both legally and financially in the eventuality of a dispute. Such contracts may be deemed unenforceable in a court of law. Therefore, the prudent businessperson considers his or her contracts and ensures they are legally binding in all circumstances.
As you review your own contracts and negotiation process, here’s a quick list of questions to keep in mind:
• Is the contract fair? – If there are terms anywhere in the contract that a judge may construe as grossly unfair, they can determine it unenforceable. Any time one party has a considerable advantage in a contract, a judge may indeed be likely to find it unconscionable, which voids the contract.
• Was there any misrepresentation? – Any misrepresentation during the negotiation process can result in a judge declaring a contract invalid.
• Was there coercion or duress involved in the negotiation process? – Though it may seem quite ethically clear, determining coercion or duress in a courtroom can be complex and can result in the invalidation of the contract. Shrewd businessperson ask if their business is doing everything it can to protect itself from having such claims brought against it.
• Is the contract error free? – It may seem like a small thing, but even unintentional errors could have meaningful impact on the enforceability of the contract in a court of law. This is true for both parties, so to protect yourself, carefully review the entire contract to ensure it is error free.
• Is the contract even possible to enforce? – Events may take place or circumstances may change that make it impossible for one or both parties to fulfill the terms of the contract. This would legally render it unenforceable as well. Common examples of this are natural disasters.
• Do all parties have the capacity to understand the terms of the contract? – If it becomes clear that one or more parties involved does not understand what they are agreeing to, the contract can be found invalid due to a lack of capacity. This could be the mental capacity of one or more parties, or simply their inability to understand the actual language of the contract.
• Was there a failure to disclose? – If any parties to a contract withhold important information that is determined as misrepresentation in a court, the judge can use this as grounds to nullify the contract.
• Were any parties influenced or pressured into signing the contract? – If a judge determines that one side was pressured into signing a contract, they can and will invalidate the contract. Examples of this are threats to a person’s livelihood or reputation.
• Were there any breaches of public policy? – If any part of the contract requires either party to behave in any manner that is illegal to full its terms, or if they are required to forfeit any legally guaranteed rights, the contract cannot legally be enforced.