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Five Ways a Contract Can Be Rendered Invalid

Business and Commercial Disputes By Binnall Law Group - 2021/05/28 at 11:01am

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If you’re involved in a business contract dispute, then you may be concerned (or excited) by the prospect of the contract being considered “invalid” and “unenforceable.”

For example, if you are attempting to sue the defendant for breaching the contract, then you’ll want the contract to be deemed valid and enforceable — if the defendant successfully establishes that the contract is invalid and unenforceable, then they will be able to avoid liability for breaching said contract.

As the enforceability of a contract is fundamental to a dispute centered around that same contract, it’s important that you understand the factors that can influence whether a contract is deemed invalid and unenforceable.  If you would like further guidance, we encourage you to get in touch with an experienced Alexandria business litigation attorney at Harvey & Binnall, PLLC today to schedule a consultation.

For now, consider the following five ways in which a contract can be rendered invalid:

1) Offer and Acceptance

All valid contracts require an offer and an acceptance.  Without an offer (of terms) and an acceptance (of those terms), there is no contract.

This process can be difficult to identify in casual settings.  In fact, there are many situations that give rise to an offer and acceptance despite there being no written contract.  By that same token, there are situations where the parties have seemingly come to an agreement, but there remain open-ended questions that haven’t yet been resolved — and as such, there was no contract formation.

Let’s use a quick example for clarity.

Suppose that you and a potential business partner are meeting for dinner.  At the dinner, you talk out various options with your potential business partner, and they nod and agree that it sounds like a good idea and that they’d be happy to move forward provided that certain conditions are met.

If you begin to manufacture supplies for the business partner at that point, without obtaining further confirmation that they have accepted your offer, and without confirming that the conditions would be met, then you could not sue them for refusing to pay you for the delivered supplies — they could reasonably argue that no contract had been formed.

2) Contract is Unconscionable

Some contracts are simply unconscionable due to their terms.  Their terms may be excessively in favor of one party, for example, and the court may consider them unenforceable for that reason.  Whether a court evaluates a contract as unconscionable depends on the surrounding circumstances, and on the expertise of the parties.

For example, businesses (particularly those with experience in the industry at hand) are generally considered to be knowledgeable and not as vulnerable to abuse in contracts.  As such, it is quite rare for a contract to be considered unconscionable in the business agreement context — businesses are expected to “know what they are doing” when they freely contract with other businesses.

3) Object of the Contract is Illegal

Contracts which center around illegal goals are fundamentally invalid.  These “illegal” goals don’t necessarily need to be high-stakes criminal matters, however.

For example, suppose that there is a regulation in your state preventing businesses from selling certain goods without a license.  You are not aware of this licensing requirement, and your potential business partner (supplying the goods) is not aware that you do not have a license — but the contract still technically involves illegal activity (selling the goods unlicensed).

If you attempt to sue the business partner for failing to deliver the goods, they could effectively turn around and argue that the contract is invalid.

4) Terms Are Too Vague

Contract terms must be specific enough to fully clarify the contract.  Contract terms that are too vague or confusing may give rise to an invalid contract.

As such, it’s critical that — before entering into an agreement — you work with an attorney to draft the contract with specific, certain terms.  If not, there may be a significant dispute down the line (due to confusion over the terms).

5) Facts Were Misrepresented

If one of the parties involved in the contract misrepresented the facts, and those facts were relevant to the agreement, then the contract may be declared invalid and unenforceable by a court.  After all, a valid contract requires that there be a “meeting of the minds.”  If the two parties did not have the same set of facts in mind, then there cannot be a “meeting of the minds.”

If the facts were intentionally misrepresented (fraud) in such a way as to constitute egregious and malicious misconduct, then the court may also be empowered to award punitive damages to the plaintiff.  Punitive damages act as a multiplier on the baseline compensatory damages amount.

For example, a $100,000 damages recovery can transform into a $500,000 recovery if punitive damages are awarded.  These damages are awarded rather infrequently, and only in extreme cases (so as to discourage other similarly positioned parties from engaging in such misconduct) — despite that, it’s worth exploring this option if it is available to you under the circumstances.

Contact an Alexandria Business Litigation Attorney Today for Immediate Assistance

Harvey & Binnall, PLLC is a boutique commercial litigation firm based out of Alexandria, VA and representing clients throughout the DC metro region.  We take pride in our commitment to providing truly client-oriented advocacy.

Our attorneys are fierce advocates who offer comprehensive representation at every stage of litigation.  By maintaining a trial-ready approach from the beginning of representation, we are able to exercise significant leverage during negotiations.  Oftentimes, we are able to secure a positive outcome early on, avoiding the frustrations and costs of litigation entirely.

If you’d like to speak to an experienced Alexandria business litigation attorney at our firm, we encourage you to call us at (703) 888-1943 or send us a message online to request a consultation at your earliest convenience.