If you are involved in a business agreement, one of the first things to determine is whether the promise or agreement at issue will be considered an enforceable contract under the law. While contracts usually involve promises to do something (or refrain from doing something), not all promises are contracts. How does the law determine which promises are enforceable contracts and which are not?
Is the Agreement a Contract?
Courts look at a number of factors to determine whether an agreement should be enforced. The court must initially determine whether the agreement constitutes a contract or not. In order for an agreement to be considered a valid contract, it must satisfy certain requirements. One party must make an offer and the other party must accept it. There must be a bargained for exchange of promises, meaning that something of value must be given in return for a promise. In addition, the terms of a contract must be sufficiently definite for a court to enforce them.
Enforcement and Contract Defenses
If a court determines that a contract exists, it next must decide whether that contract should be enforced. There are a number of reasons why a court might not enforce a contract. These are called defenses to the contract. Contract defenses are designed to protect people from unfairness in the bargaining process, or in the substance of the contract itself. If there is a valid defense to a contract, the contract may be voidable, meaning the party to the contract who was the victim of the unfairness may be able to cancel or revoke the contract. In some instances, the unfairness is so extreme that the contract is considered void, in other words, a court will declare that no contract was ever formed. What are some of the reasons a court might refuse to enforce a contract?
Contract Defenses: Capacity to Contract
In order to be bound by a contract, a person must have the legal ability to form a contract in the first place. This legal ability is called capacity to contract. A person who is unable, due to age or mental impairment, to understand what she is doing when she signs a contract may lack capacity to contract. For example, a person under legal guardianship due to a mental defect completely lacks the capacity to contract. Any contract signed by that person is void. In other situations, a person may not completely lack the capacity to contract. The contract would then be voidable at the option of the party claiming incapacity, if he or she is able to prove the incapacity.
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