WHEN THE COURT INTERVENES TO REFUSE TO ENFORCE A CONTRACT

A contract is defined as an agreement between two or more persons which is enforceable by a court of law, and in order for the contract to be enforceable, the contract must contain certain basic information which the courts have determined over several decades to be necessary. A contract may be oral or written or partly oral and partly written or may be implied from the conduct of the parties. A contract which is in writing can be in the form of a data message, accessible in a manner usable for subsequent reference and otherwise in words. At the outset, the law of contract is primarily concerned about the enforceability of the obligations of the parties to the contract that is, in situations whereby a party to the contract breaches or fails to perform any of his/her contractual duties, the other party will be entitled to legal remedies.

The right of an individual to enter into a contract is one of the fundamental rights that is often praised and receives primary credit for its ability to establish a functional, market-based economy. Freedom of contract enables individual’s and legal entities such as corporations to freely decide whether to enter into an enforceable agreement and to determine the rights and obligations of their bargain. However, this freedom can be impaired by the court when the purpose for which the agreement was entered is in contrary to a statute or opposes public policy. 

When the Court Would Intervene to Refuse to Enforce a Contract Between Parties

• The courts generally will not enforce contracts that violate public policy and will also not enforce an agreement which is contrary to a statute. Although parties may enter into an agreement as they wish, sometimes, the court will decide that the interest in freedom of contract should be outweighed by some overriding interest of society and will refuse to enforce a promise or other term on grounds of public policy. Under the public policy exception, courts will generally not enforce an agreement if the interest in its enforcement is clearly outweighed in the circumstances by a public policy against the enforcement of such terms. In determining the interest in enforcement of a term, courts consider the parties justified expectations, any forfeiture that would result if enforcement were denied, and any special public interest in the enforcement of the particular term. The interests of the community or the public are of paramount importance in relation to the concept of public policy. As a result, agreements that are clearly inimical to the interests of the community, whether they are contrary to law or morality, or run counter to social or economic expedience, will accordingly, on the grounds of public policy, not be enforced

• In addition to this, unequal bargaining power could also be a factor in which the court will consider not to enforce a contract on public policy grounds. Inequality of bargaining power occurs when the terms and provisions of a contract are unfair, unjust and unreasonable. In determining the bargaining power of the parties, the factors considered by the courts are the educational level and socio-economic status of the parties. In ascertaining the unequal bargaining power between parties, the court will demand that the party wishing to rely upon a clause which stipulates unequal bargaining power bring evidence to show that the other party agreed to include that term in the contract.

• Also, good faith and unfairness may deter the court from enforcing a contract where good faith can be described as an ethical value or controlling principle based on community standards of decency and fairness that underlies and informs the substantive law of contract. Unfairness in a contracting agreement can be seen in various forms such as the manner in which consensus was obtained. Parties are required to behave honestly and fairly in their dealings with one another and the concept of good faith has acquired a meaning wider than mere honesty. In establishing reasonableness and fairness, the courts usually take some considerable time to make a valued judgment. Moreover, the party wishing to escape liability has to prove beyond reasonable doubt that the restraint of the agreement is against public policy. Fairness and good faith in contractual relations imply a degree of social control over the private business of contracting and reflects a more communitarian approach to contract.

In sum, even though the principle freedom of contract limits state interference from impairing the obligations of contracts, however, this freedom can be impaired by the state when the purpose for which the agreement was entered is in contrary to a statute or opposes public policy.