Reasons Contracts Fail
Some contracts fail because they are “illusory” — meaning there is no consideration. For example, suppose a person agrees to give me their car for free. If the other person does not give me the car, I will have a very difficult time getting the court to rule in my favor since a court will likely view the promise of a free car as a gift. If we change the facts to where a person will give me their car if I tow it away from their home, it is more likely that a court will view this as a contract.
A common example of illusory consideration arises when a buyer, for example, agrees to purchase something but has the complete right to reject it and cancel the agreement if the item does not meet with their subjective approval. Under these circumstances, can we really say that the buyer has agreed to do something? Not really, and there may therefore not be a contract under these circumstances.
Contract Limitations in California
There are limits on what the parties may contract to do. For example, a contract must have a lawful purpose. A gambling debt in California is not generally enforceable. Similarly, a party defaulting on an agreement to sell illicit drugs would not be enforceable — at least in court.
In addition, there are limits on what people can agree to or what a court will enforce. If an agreement is unconscionable, a court may not enforce it. In addition, courts may do equity between the parties to prevent one side from taking unfair advantage of the other side. Take for example the situation above where the buyer can reject and cancel the agreement at their subjective whim. Suppose the seller delivered the item and the buyer used it for some time before rejecting it. A court may enforce the contract of sale because the buyer used the property. Or the buyer may have to pay for the value of the use of the product for the time it was used.
Courts may also look beyond the form of a transaction at the economic realities underlying it. In leasing cases, for instance, the lease of equipment may really just be the sale of goods structured in the form of a lease. Depending on the circumstances, it may be treated as a sale even though it is set up as a lease.
The law recognizes and courts will enforce oral agreements, but oral agreements will not work in all situations. For example, sales of real property, sales of goods for more than $500.00, or contracts not to be performed within one year must be in writing. It is also a better practice to use written agreements because it will reduce (but not eliminate) disputes about the existence of a contract or its terms.
If you need assistance reviewing, understanding, or enforcing a contract, do not hesitate to call for representation in these matters.