Anaya Nolan
Contracting around the law, also known as contracting contrary to statute, refers to the question of whether private contracts can supersede local, state, or federal laws. The legality of a contract may be in question if it violates a statute, involves fraudulent dealings, or is deemed unconscionable. While parties to a contract generally enjoy the freedom to agree on their own terms, certain limitations exist, such as mandatory rules that cannot be overridden by the contract. Additionally, the legality of a contract depends on the law of the jurisdiction governing the contract and the law of the place of performance. In some cases, contracts may be found unenforceable on grounds of public policy or if they require a breach of law.
| Characteristics | Values |
|---|---|
| Parties to a contract | Enjoy freedom to contract |
| Contractual freedom | Ability to choose the law applicable to the contract |
| Contractual legality | Depends on the law of the jurisdiction governing the contract and the law of the place of performance |
| Illegality of contract | If the purpose of the contract is to achieve an illegal end, it is unenforceable |
| Contractual defences | Can be used to excuse parties from their obligations under the contract |
| Contractual voidance | If a contract violates a statute, it is considered void |
| Mandatory rules | Will be enforced, even if the parties to a contract attempt to override or modify them |
| Default rules | Can be overridden by a contract, trust, will, or other legally effective agreements |
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Contract defences
In general, a contract breach occurs when one party does not fulfil what they promised or were supposed to do as per the contract. When this happens, the party accused of the breach can raise various defences. Here are some common defences to breach of contract:
Mutual Mistake
A mutual mistake of material fact may excuse defendants from their contract obligations. For example, a painter and a restaurant owner may agree that the painter will paint the restaurant in the next six months, but they do not agree on a price. In this case, an essential element of the contract, payment, is missing, and the contract is deemed too indefinite to be enforceable.
Misrepresentation
A misrepresentation is a false assertion of fact. A plaintiff's misrepresentation may excuse a defendant from contractual obligations.
Duress
Duress is the use of an improper threat to make a party do something they otherwise would not have done. A plaintiff cannot maintain a breach of contract claim when the defendant entered into the contract under duress.
Undue Influence
Undue influence is the use of unfair persuasion to overcome another party's free will. A plaintiff cannot maintain a breach of contract claim when the defendant entered into the contract because of undue influence.
Unconscionability
If a contract involves unfair bargaining power between the contracting parties or other unfair or manipulative practices, it may be deemed unconscionable and invalid. An unconscionable contract is marked by gross disparity in value and oppressive influences in the exchange.
Waiver
Waiver is the voluntary giving up of a contractual right. A plaintiff cannot maintain a claim based on a contract right the plaintiff has waived. For example, a customer orders a chocolate cake from a baker, but the baker does not have enough chocolate and makes a vanilla cake with chocolate frosting instead. The customer cannot sue for breach of contract as they approved the change over the phone and ate the cake.
Statute of Frauds
Some contracts, including those involving real property, are required to be in writing and signed by all parties involved. If a contract is supposed to be in writing but is not, a court may find that the contract is not enforceable.
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Public policy
In the context of contract law, public policy plays a crucial role in determining the validity and enforceability of agreements. A contract may be considered contrary to public policy if it violates the law, encourages immoral or illegal acts, harms citizens, or causes injury to public services or the state. For example, a contract promoting an activity that is already against state or federal law, such as an illegal drug sale, would be deemed unenforceable as it contradicts public policy. Similarly, agreements that offend "public sensibilities" or communal values, such as those involving sexual immorality, can also be considered unenforceable on public policy grounds.
Courts play a pivotal role in interpreting and applying public policy to specific cases. When a contract is found to be contrary to public policy, it is typically deemed invalid and unenforceable. This means that the court will treat the contract as if it never existed, and neither party will be entitled to any remedies or legal recourse. However, it is important to note that the interpretation of public policy is at the court's discretion, and they must carefully consider each case individually.
To ensure compliance with public policy, it is advisable to consult with a lawyer during the drafting or negotiation process. A public policy attorney can provide guidance and help identify any potential conflicts between the contract and prevailing public policy. In the event that a contract is found to violate public policy, an attorney can assist in redrafting or rewriting the agreement to ensure it aligns with the relevant principles and legal requirements.
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Jurisdiction
The choice of jurisdiction can have significant implications for the enforceability of a contract. For example, if there is no jurisdiction clause, a lawsuit might need to be filed in the state or country of the other party, requiring the engagement of local attorneys and potentially resulting in higher costs and inconvenience. On the other hand, a well-chosen jurisdiction clause can reduce costs and increase convenience by allowing for local legal proceedings.
When selecting a jurisdiction, it is advisable to choose a location with which the contract has a connection. This could be where the business is located, where production takes place, or where the contract was signed. While the laws of different states or countries generally follow similar principles, there are differences to consider. For instance, some states have stronger non-compete laws or specific regulations related to certain industries.
The jurisdiction clause is typically included in the contract's boilerplate language and can be combined with the governing law clause or presented as a separate paragraph. The governing law clause determines which state's or country's laws will be applied to interpret and enforce the contract. While the choice of jurisdiction focuses on the court or forum, the governing law addresses the specific laws that will be used to resolve disputes.
In international contracts or those involving multiple jurisdictions, it is essential to carefully consider and clearly specify the jurisdiction and governing law to ensure the contract's enforceability and mitigate potential legal challenges.
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Mandatory rules
Contract law can be divided into two types of rules: default rules and mandatory rules. Default rules can be overridden by a contract or other legally binding agreements, whereas mandatory rules will be enforced even if the parties to a contract attempt to override or modify them.
Substantive mandatory rules can respond to procedural defects in contracts, such as information problems, and sometimes aim at other goals. They can also respond to defects in both the process of contracting and the substance of contractual provisions. An example of this is the doctrine of unconscionability, which limits enforcement where there is an improper admixture of procedural and substantive unconscionability.
Procedural mandatory rules, on the other hand, regulate the process by which contracts are formed. Examples of procedural rules include disclosure duties and cooling-off periods.
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Void contracts
A void contract is an agreement that is illegitimate and unenforceable from the moment it is formed. It is distinct from a voidable contract, which is a valid and legally enforceable agreement that can be nullified by one or both parties for reasons outlined in the contract or by law.
Other reasons for a contract to be void include the impossibility of performance, where any aspect of the contract becomes impossible to carry out by one of the parties. For example, a contract to procure a unicorn would be considered impossible. Furthermore, a contract is void if one party knowingly benefits at the expense of the other, or if new information arises that was previously unknown to the parties involved. In the case of usury contracts, where interest rates exceed the state or local laws, some states consider these loans automatically void, while others allow for the recoup of the initial principle or interest up to the legal amount.
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Frequently asked questions
Yes and no. Parties to a contract usually enjoy the freedom to contract and agree on their terms. However, mandatory rules will be enforced, even if the parties to a contract attempt to override or modify them.
Yes, a contract cannot require a breach of law. Any such contract is invalid, but a clause may limit the extent to which it is invalidated.
A void contract is a contract that violates a statute or charges interest rates above the rate that state or local laws permit.
A contract can be found unenforceable on grounds of public policy, i.e., if the contract represents something that could harm society as a whole. For example, a court will never enforce a contract for an illegal purpose, such as a contract for murder.
Yes, sometimes a contract is unenforceable not because of purposeful bad faith by one party but due to a mistake of a present fact.
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